To trade put options with E-trade it is necessary to have an approved margin account. Investors may sign up for margin accounts with E-trade at us.etrade.com. Investors are faced with deciding whether they prefer to buy and sell options and whether they want to write options, either covered or naked. Writing naked options involves additional approval because it entails a significant amount of risk. Options are a type of derivative. Calls bet that stocks are going to increase in price. Puts bet on decreases in price. An option is the right, but not the obligation, to buy or sell a set amount of stock for a predetermined amount of time at a predetermined price.
Once investors have an approved margin account they may then log in to their accounts at us.etrade.com. To buy options, investors are required to research which company or index, strike price and expiration month they are interested in buying. Once they have this information they may enter an order to buy on the E-trade website. Options can change in value quickly. Investors are free to sell any options they have purchased at any time before they expire. Holding options for long periods of time is risky because options lose value through time value decay.
Customers interested in writing options as an income strategy must either have the corresponding quantity of the underlying stocks in their account or be permitted to perform naked option writing. Option writers need to research which months and strike prices are available for the options they want to write. Nearby strike prices and months may offer better values than others. Covered call option writers may have their stocks called away from them. Naked option writers may be faced with buying stock or entering a short position in the open market in order to meet the obligations of their naked positions being exercised. E-trade contacts the writers of naked option positions quickly at the telephone number or address provided if options that they have written are exercised. E-trade may close positions that do not fulfill margin requirements quickly.
