7

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):

enter image description here

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

10

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.

  • 5
    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 '14 at 4:19
  • Note that options are available on all sorts of underlying securities, not just stocks. – dg99 Apr 23 '14 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. – JTP - Apologise to Monica Apr 23 '14 at 15:49
  • :) Does TDAmeriTrade limit its trading to stocks? (I don't know much about the retail brokerage industry.) – dg99 Apr 23 '14 at 15:53
  • 2
    @Richard You are definitely getting things confused in a bad way. Your uninvested money goes into that money market, which does accrue basically nothing. TD Ameritrade will let you buy stocks, bonds, CDs among other things, which is where you should focus. Invest in some combination of those instead of holding the money market. As in JoeTaxpayer's answer you do not need to sign up for options trading. Based on your questions you should not at this point until you understand very well what they are and how to use them. – user32479 Jul 7 '16 at 2:09

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.