From Fidelity's Option Agreement Application, after a discussion of the risks of writing uncovered calls and puts:
"Uncovered option writing is thus suitable only for the knowledgeable investor who understands the risks, has the financial capacity and willingness to incur potentially substantial losses, and has sufficient liquid assets to meet applicable margin requirements. In this regard, if the value of the underlying instrument moves against an uncovered writer’s options position, the investor’s broker may request significant additional margin payments. If an investor does not make such margin payments, the broker may liquidate stock or options positions in the investor’s account, with little or no prior notice in accordance with the investor’s margin agreement."
I understand your point about cash backed short puts but Fidelity, at least, requires that you have a margin agreement in place before you can sell puts, regardless of how much cash you have in the account. IRAs are not allowed to be set up as margin accounts. Perhaps that is, again, only a Fidelity requirement but I thought it was imposed by the IRS and a requirement for an account to be considered an IRA eligible for favorable tax treatment.
I know at Fidelity one can't apply for Level 3,4,or 5 option trading without first filling out a margin application and they won't accept a margin application for an IRA. |
