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Day Trading/re: call on min bal, selling options relay

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Question
NO, not when you sell an option for a call, when you get called for low balence?  But if you can explain both, shoot.


thnaks again
---------- FOLLOW-UP ----------

QUESTION: Can you describe/explain what happens during after a call?

Following is the reason:

Hi Ron, so I understand the question. Are you wondering what happens if you sell a call option and you're called on it?

Expert: Mark Hodge

Answer
Hi Ron,

It's a little tricky without knowing the type of market you are trading. If you're trading without margin, there shouldn't be any problems if your account has a low balance when trading stocks. If you're trading with margin (borrowing from your broker), then your broker will set a minimum margin requirement that you must maintain OR you need to fund your account with additional funds or liquidate your position. If this should happen your broker would usually attempt to contact you before acting (known as a margin call), but I'd encourage you to find out from your broker the EXACT protocol and the minimum margin requirement necessary so this can be avoided.

As a rule of thumb, your broker knows best, and they're there to answer your questions!

With futures trading there is an initial margin requirement (what you need to take a position) and a maintenance margin requirement (what you need as a minimum if the value of the position fluctuates) similar to stocks but the difference is that you're not actually borrowing money from your broker. Instead this is just a "good faith deposit". The overnight margin requirement is set by the exchange but day trading margins are usually substantially lower. For example to trade 1 contract of the E-mini S&P a trader is usually required to have approximately $4500 to hold a position. BUT, many brokers offer day trading margins that are as low as $500 per contract as long as the position is liquidated by the end of the day. Similar to your stock requirements if the value of the position drops below the maintenance requirement then your broker will contact you to deposit additional funds, or require that the position is liquidated.

Since you asked...if you sell a call option, you have an obligation to deliver X amount of shares to the buyer of the option (call buyers have rights, call sellers have obligations)up until the option's expiration. They say that most options expire worthless so most of the time call sellers anticipate that this will be the case, but if the call is worth money at expiration and the owner of the option exercises their right to buy the shares, then the call seller is obligated to deliver the number of shares set by the call option. FYI - This is a scenario that's pretty easy to avoid if you are a call seller by simply closing the position before expiration.  

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Mark Hodge

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Questions related to technical analysis, strategies, risk, trading plans, trading psychology and money management. Experience in trading all markets and time-frames with expertise in futures (e-minis, currencies, commodities) and equity options. Unfortunately I am not allowed to offer any specific trading advice (i.e. should I go long the E-mini S&P today).

Experience

I have been involved in the industry since 1995 working for Morgan Stanley Dean Witter and American Express Financial Advisors before becoming a full time trader. As Head Education Coach with Rockwell Trading I have coached hundreds of students around the world to achieve their trading goals with simple strategies, a sound trading plan and proper money management for the leveraged markets.

Organizations
Currently serving as Rockwell Trading's Head Education Coach www.rockwelltrading.com and moderator for Rockwell's Student Trading Room where we follow opportunities in the minis, interest rates, currency and grain markets daily.

Publications
Technical Analysis of Stocks & Commodities, "Day Trading With Volatility", June 2010 SFO Magazine, "Home on the Range: Lasso Trades Without Time", August 2010 SFO Magazine, "Day Trading Indicators, Part 1", January 2011 SFO Magazine, "Day Trading Indicators, Part 2", February 2011 SFO Magazine, "Technical Strategy", April 2011 SFO Magazine, "Advanced Trading Techniques - Futures Spread Trading", October 2011 Active Trader, "A Simple Day-Trading Strategy", November 2011 Marketplace Books, How to Trade Commodities: Simple Strategies for Gold and Crude That Traders Can Use in Any Market, June 2011

Education/Credentials
Formerly licensed as a financial advisor with Series 6, 7, and 63 licenses. B.A. in Organizational Communications with a Business Minor from California State University, Sacramento.

Past/Present Clients
I have worked with institutional traders, brokers, proprietary trading firms and private traders.
One of the few distinguished World Cup Advisors www.worldcupadvisors.com

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