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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: John Chapman who wrote (2140)	8/5/2001 11:03:05 AM
From: Dan Duchardt	Read Replies (1) \| Respond to of 2241

John, In most accounts, the $2,500 is sufficient because that is the maximum you can possibly lose on the trade. There is no danger of the account going negative, so there is no risk to the broker. For an ordinary margin or cash account, you should not need the $40,000 in the account with any broker. There are some IRA accounts where you are permitted to buy calls, but you may be required to hold sufficient cash to cover the cost of purchasing the stock should the option expire in the money. The options clearing process has a built in automatic exercise for options that expire 3/4 or more in the money, unless instructed to NOT exercise. Although the probability of you forgetting to sell your calls to take profits before it's too late is remote, that is the worst thing that could happen in the IRA. If the stock is purchased through option exercise you must have the cash to pay for it ahead of time. In an ordinary cash account, you would have 3 days to add cash to cover the purchase, but you cannot do that in an IRA because of contribution limitations. Dan