Can I trade uncovered calls & put online?

Discussion in 'Options' started by Eddie G, Dec 3, 2000.

  1. Eddie G

    Eddie G

    I want to find a discount online broker where I can trade uncovered calls & puts. Can anyone help? The sites I found that rate online brokers didn't say I couldn't trade uncovered calls & puts. I went down to Scottrade and only found this out after I already filled out all the forms. Is this common for online brokers? I wanted to open a $5,000 account so I wouldn't qualify for any of the professional brokers I saw in some of the messages here. Thanks.
    Eddie G
  2. rtstine


  3. rtstine is right on. Interactive brokers only requires $3500 to open a margin enabled stock and options account, and they allow every single conceivable option play, including naked calls and puts, covered calls and puts, straddles, strangles, butterflies, ad infinitum. And at $1.95 per options contract (no minimum ticket charges) you won't find a better priced options broker.
  4. Eddie G

    Eddie G

    Is InteractiveBrokers.Com good for someone who might only trade a few times per month? If I get my account built up then I would probably tade a little more often. To start out I might just purchase a stock and sell covered calls. Then I would probably start buying naked calls. I've never heard of or seen InteractiveBrokers.Com advertised on tv or anyplace. Thanks.
    Eddie G
  5. Eddie,

    Interactive brokers is actually best for traders who don't trade very frequently, or don't need all the execution tools that other direct access brokers provide. I use them for all my options and mid to long term stock positions. With their commission structure being the lowest in the industry and allowing every option play you could want, it's an ideal broker for those who trade mostly options, or use them in conjunction with stock positions.
  6. EddieG

    no one has brought it up so I will. There is a very serious reason that a lot of brokers won't allow uncovered option writing, or if they do-- require that you have to have some serious capital. Plain option writing can be extremely dangerous. If you are learning about trading from Wade Cook run a quick search on his name from to learn just a little more truth about him, like he lost over $800,000 during our bull run a year ago.

    I've been trading for over 6 years. Including being in the bond option pit at the CBOT, so I know options. The problem with options is usually for writing you have to risk 80% of your capital to make a few %. All of the testimonals from Wade Cook are from traders who did a few trades. How about long term results? Not 2 or 3 trades that is luck. Each trade is luck but overall skill is what will determine the outcome over time.

    Floor traders don't sell naked puts or calls. They hedge the positon with the underlying security.

    There are a lot of other trading strategies that produce better results with less risk.

    Robert Tharp
  7. Eddie G

    Eddie G

    I want to thank everyone for all their advice & help. I sometimes buy a stock. I will often sell covered calls against it. Sometimes after a stock has risen a lot I sell out of the money uncovered calls. Sometimes after a stock has fallen a lot I sell puts. An example would be last week vrsn looked like it was bottoming around 75 or 76. I would have sold a Jan 70 put option and received a premium of about 9 or $900 after comissions with my current broker(Benjamin Jerold in Chicago where I live). They require me to have 30% of the stock price or about $2300, minus the 5 out of the money points, or $500. So with $1800 in my account I would have received $900 in premium. I would definitely be will to receive 50% premium to risk that vrsn would be trading above 70 in 6 weeks time. I sold uncoved calls & puts starting about 10 years ago. I don't do it often. But in the example I gave above I consider the 50% premium worth the risk. Thanks again for all the help.
    Eddie G
  8. Fido (Fidelity) my old nemesis lets me write uncovered puts.
    I do not have $100,000 or more with them either.
  9. So Eddie why not keep using Ben & Jerry ??? Just curious..
    As for options I used to have an options badge in the Chicago Board of Trade ions ago (albeit they were for Corn and Soybeans ;-)
    So I know a little about oprtions too. I have done some
    Covered Calls and lost a lot of money. My old broker would
    not let me sell out of stock positions before bot back the
    options...CC's are not for the faint hearted (I am sure
    you can do ok I guess) now I rather sell puts via Fido)
    or short stocks (or the QQQ or SPY). The problem with CC
    was that some stock I pick run up and I make half what I
    would have some would tank and I lose half. It begets you
    to over-extend your positions cause you now getting more than 50% margin with the call permiums deposited. Every single stock I bot I could have bot lower, hence the put
    writting idea !!! It's much safer and better. Just pick a
    decent stock (four letters are better) write the put
    where you would buy it anyway and just wait ;-)
  10. Eddie G

    Eddie G

    I don't trade naked calls or puts often. Here is an example of when I would use naked calls or puts. Last week vrsn traded as low as 75. I strongly felt this is very close to a bottom. I wanted to sell a vrsn Jan/2001 70 put at a premium of 9 & change. Most brokers require me to put up 30% of the stock price plus in the money points or minus out of the money points. So I would be required to have buying power of 30% times 75 or $2250 minus 5 out of the money points or minus $500. So I would be risking $1750 for the chance to make $900 in premium for 6 weeks time. I felt very strong about this trade. So I would be willing to take the risk to make 50% profit in 6 weeks. And if the trade goes against me, I would close out the position if it ever gets to the point where more money needs to be risked. Or I would be able to buy vrsn at a better price. So it would actually have to be assigned to me at a price of lower than 61 before I would lose any money on the transaction. So actually I only risk about $900 to make $900 in 6 weeks. Like I said I don't do this often. But this trade just seemed to good to pass up.
    And here is how I would use naked calls. Say I own 100 shares of vrsn at a cost of $75. It goes up to about 110 in less than a week. Now I sell a 40 point out of the money covered vrsn Dec 150 call for a premium of 3 with 2 weeks time left. All the above happened from a week ago Fri today (12-1-00 to 12-7-00). This hasn't happened yet.
    Now say vrsn is trading next Wed, Thur or Fri at around 130 or 135 a share. Let's use Fri for this example. I'm short 1 covered vrsn Dec 150 call that is 15 or 20 points out of the money. The premium to close this is 1/8 plus $40 in comissions. Practically no buying power is necessary for this 20 point out of the money call that is expiring in a couple hours. I don't like to waste $40 to buy to close this worthless call option. And I can get an excellent premium of over 4 if I sell a 50 point out of the money vrsn Jan/2001 180 call. But to sell this new call my old covered call could be considered naked for the couple hours left on the expiration Fri.
    Now this has happened to me many times. If I'm trading with someone that doesn't permit me to be naked calls I will end up wasting maybe 10% to 30% or more of the profit for maybe 1 or 2 days. So I have to wait until Mon so this call is officially expired before I can sell a new call. But the stock opens down 5 or 10 points. And now the premium is cut from 4 to 3 or 2 1/2. And this happens a lot more often since they started trading after hours & before hours. Either I waste about 1/2 point (maybe 10% to 25% of the total premium) buying back a worthless call. Or I risk the chance of the premium of the next call dropping 1 or 2 points (again maybe 10% to 30% of the total premium) for maybe a couple hours or a day or two of time. Above are the situations where I like to sell a naked put or call.
    #10     Dec 7, 2000