Advanced Trading FAQs

What is options trading?

With options trading, you can buy contracts to speculate on price movements of stock, or sell contracts to generate income.

There are two basic types of options: calls and puts.

  • A call option contract gives you the right to buy (generally) 100 shares of the underlying stock (for every contract you purchase) at a set price up until the expiration date. Someone who buys a call option thinks the price of the underlying stock is going to go upward.
  • A put option contract gives you the right to sell (generally) 100 shares of the underlying stock (for every contract you purchase) at a set price up until the expiration date. Someone who buys a put option thinks the price of the underlying stock is going to head downward.

Please note: Options involve risk and are not suitable for all investors. Before investing in options, please read the Characteristics and Risks of Standardized Options.

What is the difference between Level 1 and Level 2 option trading?

Here’s a breakdown:

Level 1
A Level 1 options trader has the ability to place the following types of orders:

  • Write a Covered Call (sell to open)
  • Close a Covered Call (buy to close)
  • Perform a Buy / Write (buy a stock position and sell a call to open)
  • Perform an Unwind (sell a stock position and buy a call to close)

Level 2
Level 2 gives you more options (pun intended) to choose from:

  • All Level 1 strategies above, plus:
  • Buy a call (to open)
  • Buy a put (to open)
  • Sell a call (to close)
  • Sell a put (to close)

Please note: Options involve risk and are not suitable for all investors. Before investing in options, please read the Characteristics and Risks of Standardized Options.

What order types are available when placing options trades?

Depending on the type of options strategy you select(Covered Calls, Buy/Sell Options) you can choose between a market, limit, or stop-loss order. We'll look at these types of orders below:

Market Orders

A market order lets you buy a security at the best available price given the prevailing marketplace conditions. If you place a market order during non-market hours, we'll enter your trade when the market opens on the next business day.

Tip: You can create Market orders for every Covered Call and Buy/Sell strategy.

Limit Orders

  • If you'd like to buy or sell a security at a specific price, you'll want to enter a limit order.
  • A limit order triggers once it hits your predetermined price.
  • You can enter a limit order to expire at the end of the market day or keep it active for 60 calendar days (Good Until Canceled).
  • Limit orders are available for all Covered Call and Buy/Sell strategies.

Tip: Sometimes, limit orders take more than one market day to fill. In these cases, it may lead to two or more trades, and separate commission costs.

Stop-Loss Order

  • A stop-loss order lets you set a target price to sell your stock. Your order will trigger once it falls to that price or lower.
  • A stop-loss order is typically used to lock in profits, or limit risk while on vacation or away from the computer for a month or two.
  • When you enter a stop-loss order, you can set it to expire at the end of the market day or keep it active for 60 calendar days.
  • Stop-loss orders are only available when selling a call or a put to close a position on the Buy/Sell Options page.

Buy-Stop Order

  • A buy-stop order is a request to buy a stock - if (and only if) it reaches or goes above your target price.
  • Once your target price has been reached or surpassed, ShareBuilder will then trigger a market order.
  • A buy-stop order is typically used to place a limit price when closing a short position.
  • When entering a buy-stop order, you can set it to expire at the end of the market day or keep it active for 60 calendar days.

Tip: Buy-stop orders are only available on the "Buy to Close" choice—within the Covered Call page.

Please note: Options involve risk and are not suitable for all investors. Before investing in options, please read the Characteristics and Risks of Standardized Options.

How do I buy or sell call and put options?

When your account is approved for level 2 options trading, you will be able to 'Buy/Sell Options.' Here's how it's done:

Buy to Open (Call or Put):

  1. Navigate to Trade > Trade Now > Options tab.
  2. Select the correct account. Note: If you have one account the account will be preselected for you.
  3. Select Buy to Open in the Action dropdown.
  4. Enter the symbol for the underlying security and specify the option details (type, expiration, and strike price). Alternatively, you can use Find Symbol to locate the underlying security or the Options Chain tool for assistance in locating a specific option.
  5. Enter the Number of Contracts you want to buy. Remember, each option contract typically represents 100 shares of the underlying security. If you buy 2 call options contracts to open a position, you will have the right to buy 200 shares of the underlying security at the strike price.
  6. Select the order type (Market or Limit). Note: If you select Limit, you must enter the Limit Price and select the Order Expiration.
  7. Select a Funding Source
  8. Click Review Order. Review the order carefully prior to submitting.
  9. Once the order has been submitted, you can check its status by navigating to Trade > Order Status.

Sell to Close (Call or Put):

  1. Navigate to Trade > Trade Now > Options tab
  2. Select the correct account. Note: if you have one account the account will be preselected for you.
  3. Select the Sell to Close in the Action dropdown.
  4. Select the option you would like to sell from the Option dropdown.
  5. Enter the Number of Contracts you want to sell.
  6. Select the Order Type (Market, Limit or Stop). Note: If you select Limit, you must enter the Limit Price and select the Order Expiration.
  7. Click Review Order. Review the order carefully prior to submitting.
  8. Once the order has been submitted, you can check its status by navigating to Trade > Order Status.

Please note: Options involve risk and are not suitable for all investors. Before investing in options, please read the Characteristics and Risks of Standardized Options.

What is a margin account?

A margin account is an account (imagine that!) offered by brokerages that allows investors (that's you) to borrow money to buy securities. In a simplified example, an investor might put down 50% of the value of a purchase and borrow the rest from the broker. The broker charges the investor interest for the right to borrow money and uses the securities as collateral.

The important thing to understand about margin is that it has consequences. Margin is leverage, which means that both your gains and losses are amplified. Margin is great when your investments are going up in value, but the double-edged sword of leverage really hurts when your portfolio heads south. Because margin exposes you to extra risks, it's not advisable for beginners to use it. Margin can be a useful tool for experienced investors, but until you get to that point, play it safe.

Tip: While margin can boost an investment strategy, buying securities on margin is not for everyone. Before investing on margin, please give the Margin Account Agreement the once over to review important risk disclosure information, and see our margin interest rates.

Margin Eligible Securities

Although a lot of stocks and ETFs can be bought on margin, some securities available in a ShareBuilder account cannot. We also apply our own criterion that meets or exceeds the Federal Reserve Board in determining which securities can be bought on margin. Penny stocks, IPOs, extremely volatile stocks, and options are examples of securities that cannot be bought on margin.

Tip: While margin can boost an investment strategy, buying securities on margin is not for everyone. Before investing on margin, please give the Margin Account Agreement the once over to review important risk disclosure information, and see our margin interest rates.

What is margin borrowing?

Margin borrowing is available in Individual or Joint brokerage accounts. When approved for margin trading, your broker (that's us) extends credit to you to purchase securities or to withdraw excess cash for use outside your account. The account equity (securities and Money Market balance) is used as collateral for the loan that you take out in your account.

Important: Cash is not included in the account’s margin buying power if your Cash Sweep Preference is set to FDIC Insured Cash. If it is set to Money Market Fund, it will be included in your account’s margin buying power.

Quick snapshot on margin: If the value of the stock in the account increases, the buying power and loan availability of your account increases. Conversely, if the value of the stock drops sufficiently, you will be required to deposit more cash or sell a portion of the stock to cover a margin call.

Tip: While margin can boost an investment strategy, buying securities on margin is not for everyone. Before investing on margin, please give the Margin Account Agreement the once over to review important risk disclosure information, and see our margin interest rates.

Important information about the FDIC Insured Cash Balance

The FDIC Insured Cash Balance is held at Capital One 360, a division of Capital One, N.A., member FDIC. The FDIC Insured Cash Balance will be eligible for FDIC insurance up to $250,000 (including interest and principal) per depositor for all aggregated deposits held at Capital One, N.A.

Important Information about this Money Market Fund

Investors should carefully consider the investment objectives, risks, charges and expenses of the Money Market Fund before investing. This and other important information is contained in the prospectus which should be read carefully before investing.

An investment in the fund is not a deposit in a bank, and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Performance data represents past performance and does not guarantee future results.

The fund's most recent 7-day yield may be lower or higher than the figure quoted. Yield and return will vary.

Performance data and other information may be obtained by calling 1-800-888-9723 from 8 AM to 5 PM ET, Monday through Friday.

An investment in the fund is not a deposit in a bank, and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Buying Power

Buying Power, i.e. purchasing power, is the amount available to buy margin eligible securities (if approved for margin of course). Your buy orders will always use your cash balance before using margin credit. In short, if your buy order exceeds your cash balance a margin loan balance is created. Here's a basic formula for buying power, but it does not apply to all scenarios:

2 x (Money Market balance + (50% x marginable securities) - Loan Amount)

Important: Cash is not included in the account’s margin buying power if your Cash Sweep Preference is set to FDIC Insured Cash. If it is set to Money Market Fund, it will be included in your account’s margin buying power.

Tip: Non-marginable securities do not contribute to your buying power. Also, some margin eligible securities may have an initial rate higher than 50%, which reduces your buying power.

Even if you do not have cash or currently have a margin loan balance, you may still be able to purchase additional securities if your buying power is greater than zero.

Your buying power may move up and down as the value of your securities change throughout the day. Transactions that may change your buying power include:

  • Executed buy and sell orders
  • Open buy and sell orders
  • Deposits and withdrawals from your Money Market sweep option

When using your buying power for a security purchase, the buy order cannot put the account into a maintenance call. Also keep in mind, your account will not have buying power if the equity in the account drops below the minimum equity requirement.

Tip: While margin can boost an investment strategy, buying securities on margin is not for everyone. Before investing on margin, please give the Margin Account Agreement the once over to review important risk disclosure information, and see our margin interest rates.

Important information about the FDIC Insured Cash Balance

The FDIC Insured Cash Balance is held at Capital One 360, a division of Capital One, N.A., member FDIC. The FDIC Insured Cash Balance will be eligible for FDIC insurance up to $250,000 (including interest and principal) per depositor for all aggregated deposits held at Capital One, N.A.

Important Information about this Money Market Fund

Investors should carefully consider the investment objectives, risks, charges and expenses of the Money Market Fund before investing. This and other important information is contained in the prospectus which should be read carefully before investing.

An investment in the fund is not a deposit in a bank, and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Performance data represents past performance and does not guarantee future results.

The fund's most recent 7-day yield may be lower or higher than the figure quoted. Yield and return will vary.

Performance data and other information may be obtained by calling 1-800-888-9723 from 8 AM to 5 PM ET, Monday through Friday.

An investment in the fund is not a deposit in a bank, and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.