Hello. It`s possibly ridiculous question but pls exlplain me i wish to start trading by options with 5k using conservative strategies. but the pattern day trader rule says that i am not alloweded 4 or more trades in 5 business days if my accont is less then 25k. In a case of breaking the rule my account will be blocked. Am i rigth? and no way to trade options more frequently? Thanks
A FINRA (NASD) rule that applies to any customer who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period; the rule applies to margin, but not to cash accounts. A pattern day trader is subject to special rules. The main rule is that in order to engage in pattern day trading you must maintain an equity balance of at least $25,000 in a margin account. The required minimum equity must be in the account prior to any daytrading activities. Three months must pass without a day trade for a person so classified to lose the restrictions imposed on them. Pursuant to NYSE 432, brokerage firms must maintain a daily record of required margin. Rule 2520, the minimum equity requirement rule was passed on February 27, 2001 by the Securities and Exchange Commission (SEC) approving amendments to National Association of Securities Dealers, Inc. (NASD)
FYI, you can get around the PDT rule by opening an account with foreign broker that doesn't enforce the PDT rule. Alliance is in Jamaica and will let you open an day trading account with $2k, but I think they don't offer options. You will have to look around to find a broker that does.
If u make it a cash account you can trade as many times as u want daily--- provided u dont exceed your available equity. So for example you could make 5 round trip trades in a single day with $ 1000 allocated per trade (technically less after factoring comissions). Since options clear in 1 day u then can repeat next day & so on...again based on avaiable equity. The disadvantages? U r lumited to buying calls and puts... no spreads involving selling options since no margin. Cool?
I think you could day trade futures options, such as the e-mini S&P, but I don't think you would get near the needed liquidity such as in SPY which could theoretically be day traded. Check the volume/liquidity, that is the whole key, with tight spreads. Good luck. Generic Trade is only 59 cents, awesome deal.
thank you all. So i have two variants. 1. I can open cash account with possibility to buy calls and puts only (no spreads, no writing) or 2. Margin account but frequency not more than 4 trades in 5 business day. What about buy/sell volatility with re-hedging and neutral delta? This strategy can not be classified as day-trading as for me but possibly can require more frequent trades.
With your money, if you want to day trade you need to daytrade the emini futures. Ym ( DOW emini futures) is the best to start out. To long or short a contract you only need $2,500 and you can buy and sell all day without any limitations.... at least until you run out of money. Ym is very very liquid and is $5 a point. It would be nuts to try to day trade options... you would be killed. http://emini-watch.com/emini-trading/emini-futures/
Not true. Trading weekly deep itm deltas of .9 and up in highly liquid equities with liquid options and tight bid/ask spreads act as surrogate for the stock without the huge capital outlay. No worries about implied vol issues or time decay due to high delta... the entire premium is virtually all intrinsic...you capture virtually all the movement of the underlying. Commissions are moot therefore since number of contracts required are minimal.