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An Appropriateness Summary
[By William H. Mears; CPA, JD]
Options trading involve a high degree of risk in that the physician or other investor may lose their entire investment when the option expires. As a result, options trading may not be suitable for all doctors or investors.
Suitability
All trading firms must have a procedure in place that requires a customer’s account to be approved for options trading prior to the execution of any options orders. The following steps must be taken before an option trade can be completed:
1. Completion of an Options Agreement. The Options Agreement attests to the client’s receipt of the Risk Disclosure Book, sent out by the broker.
2. Approval of the Options Agreement by a Registered Options Principal. The Registered Options Principal will ensure that the Risk Disclosure Form is sent and approves the client for options trading based on the client’s application.
3. Return of the Options Agreement to the broker/dealer within 15 days.
4. Receipt of Risk Disclosure Form by the customer. The most important step in the options account opening process is the client’s receipt and review of the Risk Disclosure Book.
Assessment
Generally, brokers send out the Risk Disclosure Form first, get approval for options trading by a Registered Options Principal (ROP), do the trade, and get a signed Options Agreement from a client within 15 days of the account approval.
So, have you ever invested in options; why and what were your results?
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Filed under: Investing, Portfolio Management | Tagged: derivatives, options, William H. Mears | Leave a comment »
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