Options Trading Tutorial

Trading stock options on margin?

Is it possible to trade stock options on margin. Wold it be possible to double your capital and trade soley options or do you need to have stock reserved for covered calls on margin? Thanks.

Public Comments

1. Options are traded for cash settlement. I don't think you can trade options on margin. If you are interested we have started a beginners guide to options on our website http://www.shareworld.co.uk Let us know exactly what you want to achieve and we may have some suggestions.
2. This is a bad idea. The risks outweight the benefits. Buy some large cap stocks that offer a strong dividend (which are getting more difficult to find) and just sit on them. Also if you can afford to buy some Berkshire Hathaway--class B shares aren't nearly as pricey as the A shares. One last thing, purchase some gold bullion (highly rated coin sellers on e-bay are a good option) to hedge your inflation risks. AVOID gold and silvermining companies though...best to physically own your own gold.
3. Options are not marginable, but you can use funds borrowed (using other securities as margin) to buy options. For an example of how one brokerage handles margin for options positions see http://www.tradestation.com/fees/stock_margin.shtm
4. Options are not marginable therefore they have no loan value which means they can not be used in a margin account. If you are going to to covered calls you will need the security or equivalent. Most listed stocks are marginable which means they have loan value for margin purposes. But using other securities for covered calls is not practical since securities only have 50% loan value in meeting a margin call while you could just deposit the underlying security to cover a call writing. Most investors do not, and should not use margins, it's not a good practice to use margin either for trading and investing unless your well versed in the rules & regulations of margins.
5. no, but you can use margin in stocks.