How should I fill out the broker application for options trading?

What do I need to know about filling out the broker’s application for options trading authorization?

You want to answer the broker’s application questions “confidently yet without exaggeration.” Investing Daily analyst Jim Fink tells you how to put your best foot forward in this video.

The good news is that getting authorized for options trading usually means less than five minutes’ work on your part. Keep in mind: You are not applying for a mortgage here. Your broker will want to know that you have experience trading options and that you understand the risks involved. But they are not going to audit your background, test your knowledge or check your financial history.

Options brokers define different trading levels based on the risk of the options’ strategy. A higher-level authorization gives you more capability to trade different options strategies. If you are authorized to trade options spreads, your broker will require you to sign a margin agreement.

Note that you cannot use the strategies in our Options for Income and Velocity Trader services unless you are approved by your broker to trade spreads. Often that means Level 3 or higher trading authorization, but contact your broker directly to make sure you understand their particular authorization levels.

Here are a few tips to help you answer the authorization questions so that you can get the level you need:

  1. Investment Objective: Your best chance for a high trading level authorization is if you put down “speculation” as one of your objectives. Selling put credit spreads at an appropriate position size is no more speculative than buying shares of stock, but brokers seem to think all option trades are speculative, so you will want to state “speculative” for the sake of your broker’s policy guidelines, not because you actually intend to trade speculatively.
  2. Trading Strategies: The more strategies you check off, the better your chances of getting full authorization. Feel free to check off all of the strategies listed even if you don’t initially plan on trading all of them.
  3. Trading Experience: Don’t be shy when answering this question, but honesty is the best policy. The more years you say you’ve been trading stock and options, the higher your trading level authorization will be.
  4. Net Worth: Higher is better, but again honesty is always the best policy.

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