Frequently Asked Questions About Options - Part Four

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...continued from Part Three

How Do I Find An Options broker?
Talk with potential sales people at several firms. Ask each sale representative about his or her investment experience, professional background, and education. You can visit the OIC's Broker Contact Page for a list of brokerage firms and options contacts.

Investors can find out about the disciplinary history of any brokerage firm and sales representative by calling 1-800-289-9999, a toll free hot line operated by the National Association of Securities Dealers, Inc (NASD). The NASD will provide information on disciplinary actions taken by securities regulators and criminal authorities. State securities regulators also can tell you if a sales representative is licensed to do business in your state.

You will want to understand how the sales representative is paid; ask for a copy of the firm's commission schedule. Firms might pay sales staff based on the amount of money invested by a customer and the number of transactions done in customer's account.

More compensation may be paid to a sales representative for selling a firm's own investment products. Ask what fees or charges you will be required to pay when opening, maintaining, and closing your account.

Determine whether you need the services of a full service or a discount brokerage firm. A full service firm typically provides executions services, recommendations, investment advice, and research support.

A discount broker generally provides execution services and does not make recommendations regarding which securities you should buy or sell. The charges you pay may differ depending on what services are provided by the firm.



What Is An Options Exchange?
In the financial markets, an exchange refers to a securities exchange where stocks, options and/or futures contracts are traded by members of the exchange or their own accounts and the accounts of their customers.

These exchanges are registered with and regulated by the Securities and Exchange Commission (SEC). The seven U.S. exchanges that list and trade equity, ETF and index options contracts are:

• The American Stock Exchange (AMEX)

• The Boston Options Exchange (BOX)

• The Chicago Board Options Exchange (CBOE)

• The International Securities Exchange (ISE)

• NYSE Arca

• The Philadelphia Stock Exchange (PHLX)

• The NASDAQ Options Market
  

How Do I Get Started Trading Options?
First, you will want to educate yourself on option basics, understand what calls and puts are as well as the rights and obligations of buyers and sellers. You and your financial advisor can then determine if options are suitable for your portfolio.

If together you feel options are suitable, you will apply for approval to trade options with your brokerage firm by completing an application. The application may ask you to disclose the types of option strategies you would like to employ, your financial profile, risk tolerance, experience with options trading along with other information.

There are various levels of options trading which you can request. Your approval level will be based on your brokerage firmís assessment of risk they are willing to accept on your behalf and your knowledge of the product. If you are approved for options trading, you are ready to begin entering opening trades.

continued in Part Five
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