An options account is a brokerage account that has been approved by the firm for trading options contracts. Additional requirements beyond a standard account apply because of the complexity and risk of options.
Account opening requirements: - Customer must receive the ODD (Options Disclosure Document) — "Characteristics and Risks of Standardized Options" — at or before account approval. - Customer completes an options account agreement disclosing trading experience, investment objectives, financial situation, and risk tolerance. - A registered options principal (ROP) must approve the account within a reasonable time (typically 15 days).
Options approval levels (common industry practice):
| Level | Strategies Permitted | |---|---| | Level 1 | Covered calls, cash-secured puts | | Level 2 | Long calls and puts, covered positions | | Level 3 | Spreads (debit and credit) | | Level 4 | Naked calls, uncovered short puts (requires margin) |
OCC: The Options Clearing Corporation is the clearinghouse for all U.S. listed options — it acts as the counterparty for all contracts, eliminating counterparty risk.
Exercise and assignment: American-style options can be exercised any time before expiration; European-style only at expiration.
Key options terms: Premium, strike price, expiration, intrinsic value, time value, delta, theta.
> Exam tip: The ODD must be provided before or at account opening (not after). The OCC eliminates counterparty risk. Know all four basic options positions (long/short call/put) and their max gain/loss.