Buying options with fidelity

Author: jera Date of post: 15.07.2017

Below are the five levels of option trading, defined by the types of option trades you can place if you have an Option Agreement approved and on file with Fidelity. Level 1 Covered call writing of equity options. Note that customers who are approved to trade option spreads in retirement accounts are considered approved for level 2. Level 3 Levels 1 and 2, plus spreads, covered put writing selling puts against stock that is held short and reverse conversions of equity options.

Level 4 Levels 1, 2, and 3, plus uncovered naked writing of equity options, uncovered writing of straddles or combinations on equities, and convertible hedging.

Level 5 Levels 1, 2, 3, and 4, plus uncovered writing of index options, uncovered writing of straddles or combinations on indexes, covered index options, and collars and conversions of index options. A new option application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction.

You might buy an option instead of the underlying security in order to obtain leverage, since you can control a larger amount of shares of the underlying security with a smaller investment.

This gives you the potential for a higher-percentage return than if you were to buy the stock outright. However, with possibility also comes higher risk. The owner of an option contract is not obligated to buy or sell the underlying security. However, the seller of an option, if assigned, is obligated to buy or sell the security at the strike price.

Buying Put Options - Fidelity

To trade on margin, you must have a Margin Agreement on file with Fidelity. If you do not have a Margin Agreement, you must use cash. An option chain is the list of all the options available for an underlying security.

Typically, multi-leg options are traded according to a particular multi-leg option trading strategy. When placing a multi-leg option trade, use the multi-leg option trading ticket because: You can enter and execute all of the legs of your trade at the same time, based on the pricing you requested. Though you could enter each individual leg on a separate ticket, you risk having one of your legs execute while another one doesn't, or having both execute but at prices you didn't expect.

With a call option, the buyer has the right to buy shares of the underlying security at a specific price for a specified time period. With a put option, the buyer has the right to sell shares of the underlying security at a specified price for a specified period of time.

To see your positions from the Trade Options page, select the Positions tab in the top right corner of the Trade Options page.

Fidelity Options Trading Education For Beginners

This tab displays each position's Symbol, Quantity QTY , Price, Value, and Type. There are also tabs to view Orders and Balances. During market hours, the figures displayed are displayed in real-time. The date-time stamp displays the date and time on which these figures were last updated. To refresh these figures, click Refresh.

To see your balances from the Trade Options page, select the Balances tab in the top right corner of the Trade Options page. This tab displays the same fields displayed on the Balances page. To refresh the balances, click "Refresh".

A list of commonly-viewed Balance fields also appears at the top of the page under the account drop down box. The Balance fields displayed when applicable are Total Account Value, Cash Avail to Trade, Committed to Open Orders, Settled Cash, Margin Buying Power if you have a margin account , Non-Margin Buying Power and Day Trade Buying Power if you have a Day Trade Account.

To see your orders from the Trade Options pages, select the Orders tab in the top right corner of the Trade Options page. The tab displays information for open, pending, filled, partial, and canceled orders. You may attempt to cancel or attempt to cancel and replace an order from the Orders tab on the Trade Options page. The date-time stamp displays the date and time on which this information was last updated. To refresh order information, click Refresh.

To direct an options order to a particular exchange, on the Options trade ticket, in the Route drop-down, select Directed. Then select one of the following exchanges: AMEX NYSE Amex Options Market BOX Boston Options Exchange CBOE Chicago Board Options Exchange ISE International Securities Exchange PCX NYSE Arca Options Market PHLX NASDAQ OMX PHLX NOM Nasdaq Options Market. Specific share trading is not available when placing a directed options order. Also, The Boston Options Exchange BOX will not accept day Stop or Stop Limit orders, or Good 'til Canceled orders.

You place a price restriction on an option trade order by selecting one of the following order types:.

Options Trading - Fidelity

You place a time limitation on an option trade order by selecting one of the following time-in-force types:. You must call a Fidelity representative at to obtain approval and to place the order. You place restrictions on an option trade order by selecting one of the following conditions. To enter an option symbol on the trade options page, you must first enter an underlying symbol in the Symbol box. After you make an options trade, it and its status will appear immediately on your Order Status screen.

The status is updated intraday on your Order Status screen. You can attempt to cancel an option order from the Order Status screen by selecting the order you wish to cancel and clicking "Attempt to Cancel.

How fees and commissions are assessed depends upon a variety of factors. The third Friday of each month is expiration Friday. Options with the same month and year as the expiration Friday date stop trading after the market closes. You should exercise caution with regard to options on expiration Friday. Similarly, if a short position option you sold has value, you should buy it back before the market closes on expiration Friday. Your positions, whenever possible, will be paired or grouped as strategies, which can reduce margin requirements and provide you a much easier view of your positions, risk, and performance.

Strategies displayed will include those entered into as multi-leg trade orders as well as those paired from positions entered into in separate transactions. Pairings may be different than your originally executed order and may not reflect your actual investment strategy.

Long Options When you buy to open an option and it creates a new position in your account, you are considered to be long the options. This requirement applies to all eligible account types for spread trading. Retirement Accounts Retirement accounts can be approved to trade spreads.

This is in addition to any requirement, if applicable, for the spread. Debit Spread Requirements Full payment of the debit is required. The minimum cash requirement is a one-time assessment and must be maintained while you hold spreads in your retirement account.

Long 10 ABC Jan 50 Calls Short 10 ABC Jan 55 Calls. Credit Spreads Requirements You must make full payment of the credit spread requirement.

The minimum equity requirement is a one-time assessment and must be maintained while you hold spreads in your retirement account. In this example, the customer is placing his or her first credit spread order. The account consists of: In this example, this is the first credit spread order placed.

buying options with fidelity

Credit Spreads Requirements Whichever is lower: The greater of the two naked requirements on the short call, as calculated for naked equity calls The greater of the difference in the strike prices or the difference in the premiums Example: Difference between Strike prices: Naked Requirements An option is considered naked when you sell an option without owning the underlying asset or having the cash to cover the exercisable value.

The higher of the following requirements: What are the requirements for a buy-to-close option order? You must have written be short the number of contracts you want to close in cash or margin. The number of contracts you want to buy at the market close cannot exceed the quantity of contracts held short in the account. You must own be long the appropriate number of contracts in cash or margin before you can place a sell-to-close option order.

You can sell covered calls online in the same cash or margin accounts which include the underlying security. You must own be long the appropriate number of shares of the underlying security in the same account type cash or margin as the one from which you are selling the option You cannot have orders open against the shares of the underlying security. You cannot sell puts to open or uncovered naked calls. All-or-none good-'til-canceled options orders are not allowed on the Chicago Board of Options Exchange CBOE.

You may place limit orders for the day only for options spreads and straddles. Fidelity accepts stop loss orders on equity options between 9: Stop orders in the options market work differently from stop orders in the equities market. Exercise caution when placing these orders.

Trading FAQs: Order Types - Fidelity

Fidelity recommends that customers do not place stop orders on expiration Friday for options expiring that day. A sell stop loss is triggered when the ask price is at or below the stop price or when the option trades at or below the stop price. A buy stop loss is triggered when the bid price is at or above the stop price or the option trades at or above the stop price.

Generally, a stop order to buy becomes a market order when the bid price is at or above the stop price, or the option trades at or above the stop price. A stop order to sell becomes a market order when the ask price is at or below the stop price, or when the option trades at or below the stop price. In a Cash Covered Put, cash in your brokerage or retirement account is set aside, or held, to cover the put if the option holder decides to exercise the option. This cash, called the exercisable value of the option, is equal to the options strike price multiplied by the number of contracts purchased multiplied by the number of options per contract usually If this value is negative, it will appear in parenthesis.

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