How are calendar spreads treated in relation to the "pattern day trader" rule?

Discussion in 'Options' started by darkshogun, Jul 13, 2013.

  1. According to the garbage known as the pattern day trader rule, how are calendar spreads treated? Is simply opening a single calendar spread automatically counted toward the 3 day trades in 5 days allowance? How are closing orders treated? What would happen in the following scenario: Day 1- you open a single put calendar spread of 6 contracts. Day 2- you close half your original calendar spread by selling to close 3 contracts. At the same time you open a new calendar spread at different strikes than the original. How many "day trades" have you executed? Since I'm a stupid little baby that can't be trusted to decide what risks I want to take with my OWN HARD EARNED MONEY, I need to know exactly how much mess I can spill on my bib before the fascist big brother American government tells me I've been a bad boy and need to go sit with my nose in the corner and not trade for several days.
  2. 1245


    I believe they look at the legs, not the spread. Open a position on one strike, close that same strike within that time period.

  3. I unfortunately have had to deal with PDT as well. In my experience with ToS a spread is counted for PDT purposes, not the individual legs. For example:

    - If you open and close a fly on the same day that counts as one daytrade (as long as you don't leg in or out).
    - If you open two contracts of a fly and then scale out one contract at a time the same day, that counts as two daytrades.
    - If you open (to use your example darkshogun) 6 calendars today, sell 3 of them tomorrow, and then sell another 3 the next day, then you have used no daytrades.
    - If you sell (to close) 500 shares of stock today, then later in the day you buy (to open) 500 shares of the same stock, that does not count as a daytrade as long as there were no other equity transactions in that ticker.
    - The critical thing in my opinion to be careful of is that you don't blow PDT by legging out of a spread, or scaling out, on the same day and rack up multiple daytrades. I once opened a fly with 1 daytrade left, then legged out and it was counted as 2 daytrades. The same thing would happen if you open 10 flies, then scale out the same day in two transactions of 5 contracts each.

    Not to rant and rehash what others have written here many times, but I am not sure how PDT benefits retail traders. I have personally lost a lot of money by not being able to close a winning or losing position, or scale out of winning positions due to the rule.

    I am switching to IB now for reduced commissions, and am not sure if they handle PDT with regard to options spreads the same way there.
  4. It is for the benefit of the brokers. As FINRA says, "The majority of firms felt that in order to take on the increased intra-day risk associated with day trading, they wanted a $25,000 "cushion" in each account in which day trading occurred." The original text of the rule, IIRC, bemoaned the fact that daytraders are usually flat at the end of each day so brokers don't get much income from margin loans to them, so they were not getting adequately compensated for the risk they were taking.
  5. That is very helpful, thanks.