What options trading strategies do you currently offer in the BBAE mobile app?

Redbridge currently offers the following options trading strategies to customers that meet the applicable suitability requirements:

Strategies	Level2	Level3	Level4
Long Calls	√	√	√
Long Puts	√	√	√
Sell Covered Calls	√	√	√
Sell Cash Secured Puts (Requires Cash Account)	√	×	×
Short Covered Puts（Requires Margin）	√	√	√
Vertical Debit/Credit Spreads（Requires Margin）	×	√	√
Calendar/Diagonal Spreads（Requires Margin）	×	√	√
Naked Equity Puts（Requires Margin）	×	×	√

Redbridge currently does not support index option trading.

Buying a Call

Buying a call is similar to buying a stock. You want the price of the stock to go up, making your option worth more, so that you can make a profit.

Why would I buy a call option?

When buying a call option you’re paying for the option to purchase stock at a pre-agreed price and at a future date. Since an option contract is typically for 100 shares of the underlying stock, you’re able to pay less money up front which creates the opportunity for higher returns.

How do I make money from buying a call option?

After buying a call option, the value of the call option will change in a similar way to that of the underlying stock, meaning its value can go up or down based on market changes.

You can either sell the option itself for a profit or a loss, or wait until expiration to exercise it and buy 100 shares of the stock at the stated strike price per share.

What are the risks of buying call options?

Once you buy an option contract, its value goes up and down with the value of the underlying stock. For a call option, if the stock’s value doesn’t go up enough, your call may expire worthless. However, you’ll never lose more than the price you paid to buy the call.

How risky is each call option?

The riskier a call is, the higher the reward will be if your prediction is accurate.

A call option with an expiration date that is further away is less risky because there is more time for the stock to increase in value.

For buying calls, higher strike prices are also typically riskier because the stock will need to go up more in value to be profitable.

Buying a Put

Buying a put option is similar to shorting a stock. When buying a put, you want the price of the stock to go down, which will make your option worth more, so you can make a profit.

Why would I buy a put option?

You’d buy a put because you’re able to make a profit on a stock price going down. You’re able to do this by paying for the option to sell 100 shares of stock at a pre-agreed price and at a future date. If the price of the stock goes below that price, you can sell it for more than it’s worth.

How do I make money from buying a put?

After buying a put, the value of the put option will change in a similar way to that of the underlying stock, meaning its value can go up or down based on market changes.

You can either sell the option itself for a profit, or wait until expiration to exercise it and sell 100 shares of the stock at the stated strike price per share.

What are the risks of buying puts?

Once you buy an option, its value goes up and down with the value of the underlying stock. For a put option, if the stock’s value doesn’t go down enough, your put may expire worthless. However, you’ll never lose more than the price you paid to buy the put.

How risky is each put?

The riskier a put is, the higher the reward will be if your prediction is accurate.

A put option with an expiration dates that is further away is less risky because there is more time for the stock to decrease in value.

For buying puts, lower strike prices are also typically riskier because the stock will need to go down more in value to be profitable.

Selling a Covered Call

Covered calls are an options trading strategy where an investor holds a long position in an asset and sells/writes call options on that same asset to generate an income stream. This is often employed when an investor has a short-term neutral view on the asset and for this reason holds the asset long and simultaneously has a short position via the option to generate income from the option premium. A covered call is also known as a "buy-write".

Why would I sell a covered call?

Selling/Writing covered call options can help offset downside risk or add to upside return, taking in the cash premium in exchange for future upside beyond the strike price plus premium during the contract period.

How do I make money from selling a covered call?

The buyer pays the seller of the call option a premium to obtain the right to buy shares or contracts at a predetermined future price. The premium is a cash fee paid on the day the option is sold and is the seller's money to keep, regardless of whether the option is exercised or not.

What are the risks of writing covered calls?

Seller of calls have to hold onto the underlying shares or contracts. Therefore, sellers need to buy back options positions before expiration if they want to sell shares or contracts, increasing transaction costs while lowering net gains or increasing net losses.

The maximum profit of a covered call is equivalent to the strike price of the short call option, less the purchase price of the underlying stock, plus the premium received.

The maximum loss is equivalent to the purchase price of the underlying stock less the premium received.

Selling a Covered Put

Covered puts are an options trading strategy where an investor holds a short position in an asset and sells/writes put options on that same asset to generate an income stream. This is often employed when an investor has a short-term neutral view on the asset and for this reason holds the asset long and simultaneously has a long position via the option to generate income from the option premium. A covered put is similar strategically to a covered call.

Selling a Cash-Covered Put

A cash-covered put is a two-part options trading strategy that involves selling an out-of-the-money put option while simultaneously setting aside the capital needed to purchase the underlying stock if it hits the option’s strike price. The goal of this strategy is to acquire the stock at a lower price than the market’s offering if the option gets assigned to you.

Why would I sell a Cash-Covered Put?

By selling a cash-covered put, you can collect money (the premium) from the option buyer. The buyer pays this premium for the right to sell you shares of stock, any time before expiration, at the strike price. The premium you receive allows you to lower your overall purchase price if you get assigned the shares.

How do I make money from selling a Cash-Covered Put?

With cash-covered puts, the profit potential has two components: the option trade, and if the stock gets assigned. The most you can make from the option trade is the premium. If the stock is assigned and you are given ownership, your upside is potentially unlimited as the stock moves higher.

What are the risks of selling cash-covered puts?

Cash-covered puts have substantial risks because if shares of the underlying stock fall to $0, you will still be obligated to buy the shares at the original strike price.

Vertical Debit/Credit Spreads & Calendar/Diagonal Spreads

We support spread options strategies with the following conditions:

1. Sell order must be placed together as a multi-leg order with or later than the long leg.
2. Long and short spreads must be both calls or both puts.
3. Short option leg spread with an expiration date earlier than or on the same day as the corresponding long option.

Why trade on spreads?

The advantage of spreads is that the maximum amount of loss on the trade is pre-determined.

The maximum loss for a credit spread is the spread of strike price minus the premium received.

The maximum loss of debit spreads is the premium paid.

What are the risks?

The risk of spreads could be controlled only when the both legs exists. If one leg is ITM and the other is OTM, we highly recommend to close the position and keep to loss/gain.

Equity Naked put

Margin accounts could sell put without short equity shares with margin requirement as collateral.

Why trade on naked put?

The profit potential has two components: the option trade, and if the stock gets assigned. Differs from Cash-Secured Put, the requirement is based on a rate of assigned market value, the rate will be less than 100% at most of time, so naked put will cause less collateral amount.

What are the risks?

If shares of the underlying stock fall to $0, you will still be obligated to buy shares at the original strike price.

Besides, the requirement of Naked Equity Puts is part of assigned market value. So buyingpower insufficient when assigned may happens, you may get a RegT call or RM call, and the calls could be covered by deposit/close positions. We highly recommend buy to close the ITM put before expires. Redbirge may attempt to liquidate on behalf of customer if there is no action until 1 hour before market close, in order to aviod potential Margin Call risk.