Uncovered Option Trading – Not the Way to Go with Scottrade

A Cautionary Tale for Investors

Option trading is a complex and potentially risky financial strategy. It’s important to do your research and understand before you get started. One of the most important things to know is that **uncovered option trading is not allowed with Scottrade**.

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Uncovered option trading involves selling an option contract without owning the underlying asset. This can be a very risky strategy, as you could end up losing more money than you invested. This is why Scottrade does not allow it, and this policy aligns with the Financial Industry Regulatory Authority (FINRA) guidelines for uncovered option trading.

What is Uncovered Option Trading?

Uncovered option trading can be a very risky strategy. If the price of the underlying asset moves against you, you could end up losing more money than you invested. This is especially true for call options, since you are obligated to buy the underlying asset if the option is exercised.

Why Does Scottrade Not Allow Uncovered Option Trading?

Scottrade does not allow uncovered option trading because it is a high-risk strategy that can lead to significant losses. Scottrade is committed to protecting its customers, and it does not want to put them in a position where they could lose more money than they invested.

FINRA has also issued guidelines on uncovered option trading. These guidelines are designed to protect investors from the risks of this strategy. FINRA recommends that only experienced investors trade uncovered options, and it requires that brokers have a reasonable basis to believe that an investor understands the risks involved before allowing them to trade.

Tips and Expert Advice for Option Trading

If you are interested in option trading, there are a few things you should keep in mind:

• Do your research. Before you start trading options, it is important to do your research and understand the risks involved.
• Start small. When you start option trading, it is important to start small. This will help you to limit your losses if the market moves against you.
• Use a stop-loss order. A stop-loss order is a type of order that will automatically sell your option contract if the price of the underlying asset moves against you. This can help you to limit your losses.

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FAQ on Uncovered Option Trading

Q: What is a Call option?

A: A call option gives the buyer of the option the right, but not the obligation, to buy an underlying asset at a specific price on or before a certain date.

Q: What is a Put option?

A: A put option gives the buyer of the option the right, but not the obligation, to sell an underlying asset at a specific price on or before a certain date.

Q: What is the risk of uncovered option trading?

A: The risk of uncovered option trading is that you could lose more money than you invested. This is because even if the market moves against you, you are still obligated to buy or sell the underlying asset if the option is exercised.

Uncovered Option Trading Is Not Allowed Scottrade

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Conclusion

Uncovered option trading is a risky strategy that is not allowed by Scottrade. If you are interested in option trading, it is important to do your research and understand the risks involved. You should also consider starting small and using a stop-loss order to limit your losses.

If you would like to learn more about options trading, you can check out the following resources:

• [The Options Industry Council](https://www.optionsindustrycouncil.org/)
• [The Chicago Board Options Exchange](https://www.cboe.com/)
• [The International Securities Exchange](https://www.ise.com/)