Margin Accounts Vs. Cash Accounts for Option Trading;
One thing I have learned in options is that you have to be able to get in and get out quickly to protect your trades if the market moves in the wrong direction. Especially, if you are trading weekly out of the money trades. So for anybody who trades options on a margin account with less than 25K in their account I strongly suggest that you switch that margin account to a cash account for trading options ASAP!
With a cash account you don't have to worry about the pattern day trading rules applying to your account. "PTD rules do not apply to Cash Accounts."In a cash accounts Option Trades settle after just 1 Day vs. 3 Days for stocks.
I had learned the hard way this week trading options on a margin account with less than 25K. I had gotten crushed with my option trading. I started the week out getting 3 day trades early in the week on my account. Going in a option trade and not being able to exit your position on the same day is a Recipe for Disaster. I could not exit none of my trades this week without triggering a 4th day trade on my account. Yesterday, I placed some puts and by the time today rolled around to exit my positions all my puts were worthless. I lost over 2 grand between yesterday and today because of pattern day trading rules on a margin account.
Last week I had $1500 in profits on American Express options, but I could not exit the trade because of pattern day trading rules. The next day I broke even on my American Express trade. You Cannot trade options without being able to get in and get out of your trades in the same day!
I hope this helps anybody who has experienced the same problems I have with trading stock options on a margin account with less than 25K. I made the switch and now I won't have any more restrictions holding me back on my option trades.
Have a Great Weekend Everyone!
