So you want to day trade options on a Robinhood cash account and you are unsure where to start? We got you covered.
In this article, we will answer all of your questions about day trading options with a Robinhood cash account.
Can you trade options with Robinhood's cash account?
Yes, you can trade options with a Robinhood cash account. This means that you can buy calls and puts (buy to open) without the risk of a margin account.
However, you will not be able to sell naked options in Robinhood. This means that you will not be able to sell puts or calls on stocks you do not own. For that reason, you may need a margin account with another broker, and this is one of the reasons why some traders have multiple brokerage accounts.
This way you do not have to worry about getting a margin call or risk investing and getting into debt.
Can you sell options with Robinhood's cash account?
You can sell options with Robinhood Cash, as long as you either own the stock (covered call) or have the funds to sell a cash-covered put.
As we mentioned, you will not be allowed to sell naked options with a Robinhood account, because these types of trades are not allowed on the platform.
Naked options are also described as uncovered options because you are selling an option without owning the underlying asset, or cash to cover if the option is exercised. For these types of trades, you will be required to have a margin account.
However, by using a Robinhood cash account you will still be able to sell covered calls or covered puts.
Can you day trade options with a cash account?
Yes, you can day trade with a cash account, however, there are some limitations. You will only be able to trade with settled funds, and this means that you will not be able to use unsettled funds to day trade options.
Although cash accounts do not have to comply with pattern day trading rules, they could face a Good Faith Violation. This happens when you trade with unsettled funds and sell the position before the settlement occurs.
Can you be a pattern day trader in a cash account?
No, the pattern day trader (PDT) rules only apply to margin accounts, and therefore if you need to have a margin account. With a cash account, you can only day trade with settled funds.
How many day trades can you make on Robinhood's cash account?
In order to avoid being flagged as a pattern day trader, you can only execute three trades, during a five-day period. This means that you are limited to 3-day trades during those 5 days, unless you have at least $25,000 in cash and stocks in your account, and crypto is not accounted for.
Day trading carries tremendous risks not only for day traders but also for brokerages. Therefore a certain level of margin is required in order to day trade constantly.
Can you day trade on Robinhood without 25k?
According to the FINRA rules, pattern day traders require a minimum of $25,000 in their margin account. This does not mean that you require this amount to day trade. In fact, you can day trade with a simple cash account, but you are limited to trading with settled funds.
You can day trade options with a Robinhood cash account, but you need to be aware of its limitations. You will only be able to trade with settled funds, and this can mean that you may keep each position a small size of your portfolio.
Remember that day trading, and especially day trading options carries a significant degree of risk. There are clear reasons that explain why most traders actually lose money, so thread carefully.