Sunday, January 1, 2012



Option trading being a wasting asset, when the price melts on you, called TIME DECAY, the Day Trader rule set by the EXCHANGES is a real set back and difficulty for straight buying and selling OPTION TRADE CONTRACTS.

The basic requirement seems to be the EXCHANGES, want to penalize amateur traders, the small retail trader. You can open a trading account with as little as $2000 depending on your broker. However, the EXCHANGES in their WISDOM, or something else; have designated that if you do not have $25,000 in your account, should you DAY TRADE too much, you will be penalized and forced to trade with such a smaller account, in multiple day trading.

Given that trend followers, where the money is made, need to CLOSE at the END OF THE DAY, and put the profit in the bank, the overnight requirement by the EXCHANGES is a HANDICAP. The way it works I´m told by advisors with THINK or SWIM brokerage is that if you make 3 day trades per 5 day period, you are clear, but if you make a fourth trade, same day, you will be BLOCKED from day trading. At least that is what I thought, when I got a box on my screen that said I AM JUDGED TO BE A PATTERN TRADER and prohibited from closing a trade the same day, unless I increase my $10,000 account to $25,000.

Now I can´t figure out, why one can day trade with $25,000 and not with $10,000, or $2000, but that is the RULE from the EXCHANGES.

In the latest advisory from my broker, I am told I CAN day trade, or practice the art of closing a winning trade by the END OF THE DAY. Or closing a losing trade. I can do it TWO TIMES for the week, but I must otherwise hold my trade into multiple days,not knowing what the heck is going to happen. Lose more often than not. Due to not being able to cut my losses short, or correct a mistake by closing and reversing, or put a profit in the bank at the end of the day.

So much, for cutting LOSSES SHORT, or rectifying a mistake and closing and reversing your trade. If you make that Fourth trade in a week of 5 trading days, you get blocked.

However the latest advisory is that I can close a day trade up to twice in a 5 day period. Other trades must be held into multiple days. I´ll have to think about that as a strategy a LOT. As the OPTIONS ON INDEXES, I TRADE, are a MELTING ASSET. They lose premium each day due to TIME DECAY. If you are in the last week before the monthly EXPIRATION DATE, it gets even worse.

Just got an update from my BROKER. Said that I am only allowed TWO DAY TRADES per 5 day period. The THIRD TRADE must be multiple days, overnight holding. A FOURTH TRADE WOULD BE BLOCKED, REJECTED.

Anyway, as a budding beginning amateur OPTION TRADER, that is my current understanding of the EXCHANGE DAY TRADER HANDICAP SYSTEM. January 1st, starting 2012.

Lets see if I go broke this year?

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