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I am filling out the form to apply for a TDAmeritrade Minor Roth IRA. I understand what's going on so far, but on the actual application I see this form (I have checked off some boxes already):

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What is an "Options Account"? Do I need one? and What are the benefits of having one?

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1 Answer 1

up vote 9 down vote accepted

Options are a derivative product, and in this case, derive their value from an underlying security, a traded stock. An option gives you the right, but not the obligation, to buy a stock at a given price (the strike price) by a given time (the expiration date.) What I just described is a call option. The opposite instrument is a put, giving you the right, but not the obligation, to sell the stock at a given price.

Volumes have been written on the subject, but I'd suggest that for a custodial Roth, I'd not activate the ability to trade options.

How to get started with options investing? offers a nice introduction to trading options. In my response, I offer an example of a trade that's actually less risky due to the option component.

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Used by an expert, options can be a way to "hedge" a bet on a stock, balancing risk against payoff. Used by a non-experts, options can be EXTREMELY risky. I agree with JoeTaxpayer that this is emphatically an area where if you have to ask, you not only don't need one but should actively avoid having one. –  keshlam Apr 23 at 4:19
    
Note that options are available on all sorts of underlying securities, not just stocks. –  dg99 Apr 23 at 15:44
    
@dg99 - absolutely. I wrote 'in this case' as the stock option is the OP's issue, but there are options on many other underlying assets. I joked to my wife that Life Insurance is a 'put' option. She submits the death cert for the strike price. –  JoeTaxpayer Apr 23 at 15:49
    
:) Does TDAmeriTrade limit its trading to stocks? (I don't know much about the retail brokerage industry.) –  dg99 Apr 23 at 15:53
    
Schwab has a partner company they bought which trades commodities. No idea if TD does. –  JoeTaxpayer Apr 23 at 15:56

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