What is options trading?
With options trading, you can buy contracts to speculate on price movements of stock, or sell contracts to generate income.
There are two basic types of options: calls and puts.
- A call option contract gives you the right to buy (generally) 100 shares of the underlying stock (for every contract you purchase) at a set price up until the expiration date. Someone who buys a call option thinks the price of the underlying stock is going to go upward.
- A put option contract gives you the right to sell (generally) 100 shares of the underlying stock (for every contract you purchase) at a set price up until the expiration date. Someone who buys a put option thinks the price of the underlying stock is going to head downward.
Please note: Options involve risk and are not suitable for all investors. Before investing in options, please read the Characteristics and Risks of Standardized Options.
What is margin borrowing?
Margin borrowing is available in Individual or Joint brokerage accounts. When approved for margin trading, your broker (that's us) extends
credit to you to purchase securities or to withdraw excess cash for use outside your account. The account equity (securities and cash) is used as collateral for the loan that you take out in your account.
Quick snapshot on margin: If the value of the stock in the account increases, the buying
power and loan availability of your account increases. Conversely, if the value of the stock drops sufficiently, you will be required to deposit more cash or sell a portion of the stock to cover a margin call.
Tip: While margin can boost an investment strategy, buying securities on margin is not for everyone. Before investing on margin, please
give the Margin Account Agreement the once over to review important risk disclosure information, and see our margin interest rates.