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Strategies & Market Trends : Options -- Ignore unavailable to you. Want to Upgrade?

To: taxman who wrote (648)	1/4/2000 5:50:00 PM
From: Jill	Respond to of 8096

Thanx for checking on all this, taxman

To: taxman who wrote (648)	1/5/2000 2:40:00 PM
From: KFE	Read Replies (1) \| Respond to of 8096

Maybe I can clarify the question of option exercise and margin. The first thing to realize is that what a brokerage firm lets you do and what is legal may be two different things. You cannot say that my brokerage firm let me do it as an excuse for a rule violation, just try this with the IRS. You are responsible for the consequences of the trades in your account. A recent example of this was firms letting customers "short against the box" to avoid the up tick rule when going short. You can definitely use the ITM equity you have as exercise equity. Margin requirement is not 50% of strike; it is 50% of entire position. Equity requirement can be met by a combo of ITM equity and cash if needed. This earlier post, which I believe started the discussion, would be a rule violation. This would be the equivalent of "free-riding". I think that the confusion on this issue is the result of common industry practice of allowing the exercise of an option and the simultaneous or next day sale of the underlying to be made without depositing any additional funds. This is at best a gray area but is common practice. This is considered a "liquidation" and I believe that the NYSE rule limits these to three in a 12-month period. This does not apply to exercising an option and holding. In this case at least 50% of strike would be required in a margin account and 100% if exercised in a cash account. Hope this helps some. Regards, Ken