Spread Trade Permission: A Must For Income Investors

Spread Trade Permission

Are you serious about generating income from your investment account? Really serious?? If so, you need to get spread trade permission from your broker.

Editor’s Note: This is part four of a multi-part series on credit option spreads. See also:

Stay tuned for more articles to come!

The Upside of Paperwork

Ugh, paperwork…

No one likes the extra hassle of filling out forms. In fact, some people miss out on great opportunities because they’re unwilling to walk through the necessary steps.

Don’t let this be you! After all, if you take just a few minutes to fill out some very easy paperwork (I promise it won’t be difficult), you could leverage that effort to make thousands in extra monthly income!

Think of this as a right of passage. And remember that requesting spread trade permission from your broker could pay off handsomely for years to come.

Requesting Spread Trade Permission

Requesting spread trade permission from your broker is easy. And in most cases, you can get approved in 24 hours or less. That means soon after you submit your (minimal) paperwork, you could be generating income on the spot!

The best way to start is to log into your brokerage account. Then search for “trading permissions” or look for an “options” tab within your broker’s platform.

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In my Fidelity account, there is a tab called “Investment Products.” When I hover over this tab, I can click on “options.” This takes me to a page with a prominent button that says “Apply to Trade Options”

Similarly, in my Interactive Brokers account, I can start by logging into account management. From there, I hover over “Manage Account” click on “Trade Configurations” and then “Permissions.” I’m then taken to a page where I can select option permission.

Your brokerage probably has a similar menu. And if you have any difficulty finding an options approval form, just call customer service. That’s what they’re there for!

Once you find the options approval form, you’ll be required to select what kind of option trades you would like to do.

I would recommend selecting “covered calls,” “cash-secured” puts, and “spread trades.” These are three of the more conservative ways that you can use options to generate investment income.

I would not select the more speculative trading strategies. You can always go back and select these later once you have more experience with options. But selecting speculative strategies will decrease your odds of being approved. Plus, I don’t believe these strategies will help you in the long run anyway.

A Word About “Experience” and “Net Worth” Questions

You may be surprised at some of the questions on the spread trade permission form. In particular, your broker will likely ask for your net worth, your liquid net worth, and your investment experience.

These are typical “CYA” (or “cover your @$$”) questions. Brokers are increasingly wary that investors will lose money on option trades and then sue the broker for the losses. So thanks to our litigious society, it’s becoming more and more difficult for individual investors to get spread trade permission approval.

It’s frustrating to think that without stating that you have experience trading options, you won’t receive permission. And without permission to trade options you won’t receive the experience necessary.

I can’t tell you personally how to fill out the form. But here’s something to keep in mind…

When you trade options (or option spread opportunities), based on the advice of a seasoned veteran, you’re using their experience to place your own trade. That might give some investors justification to state that they are trading with a material amount of experience behind their decision.

The main thing to realize is that these questions are for your brokers protection – not for yours. So answer them however you see fit, keeping in mind that the more experience and higher net worth you state, the more likely you will be to receive approval.

Which Brokers Are More Likely to Approve You?

One thing to keep in mind is that the brokerages focused on trading are more likely to give you spread trade permission than others. That’s why you might be better served by a brokerage like Interactive Brokers, TD Ameritrade, or OptionsXress.

On the other hand, 401(k) providers like Fidelity and Edward Jones may be less likely to give you spread trade permission.

I don’t specifically recommend any particular broker. You should pick a broker based on a number of different factors such as commission rate, ease of use, and quality of execution. It’s important to use a broker that has an intuitive trading platform that you’re comfortable with.

You may want to try more than one broker to see which platform works best for you. But whichever broker you wind up with, make sure you take the time to get spread trade approval. This approval could open the door to significant income opportunities in the future.

As always, I’d love to hear about your experience with different brokers and with using spread trades. You can email me any time (Zach@ZachScheidt.com) or simply reply to this post. I look forward to hearing from you!

2 Comments

  • Mel Mendelson says:

    Hi Zach:
    I have been using Scottrade and was recently approved for level IV options trading. They have option levels I, II and IV — no level III. They also told me I can’t trade credit spreads but somebody will contact me and show me how to do it on some other software. This sounds strange. What do you think?

    Thanks, Mel

    • zachscheidt says:

      Let me do some research on this. It might be a good idea to discuss different brokerages and their respective option approval process in a future article.

      Hope all is well…

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