There are several reasons why your option trading application may have been rejected. Webull evaluates multiple factors before granting option trading privileges. Below are the various reasons why a reject might occur. Please read through the definitions of the various selections possible under each criteria to better understand why a reject may occur.
1. Insufficient General Investment Experience
The definitions for each degree of General Investment Experience are as follows:
Extensive: You are a savvy investor in stocks and options. You’re familiar with the concepts of cash and margin accounts, shorting, and understand option strategies such as multi-leg options and naked writing.
Good: You’re comfortable with making investment decisions and know the fundamentals regarding stocks and options. You understand going long an option and or understand spread trading. You’re not yet a seasoned investor who understands all levels of option strategies.
Not Much: You may or may have not bought a stock before but understand the very basics. You may or may not have traded an option before but desire to employ a defined limited risk and reward covered call and cash secured put strategy.
None: You’ve never made your own investments before in the stock market.
2. Insufficient Option Investment Experience.
Please refer to the below guide for Option Investment Experience as it relates to option trading levels.
Excellent: 5 Years+
Good: 3-5 Years
Limited: 1-2 Years
3. Insufficient Risk Tolerance.
Please read the definitions for each degree of Risk Tolerance as it relates to option trading levels, shown below.
High: You can sustain a quick decrease in the value of your investment if the option price moves in the opposite direction of your strategy. More so, you can tolerate losing significantly greater than 100% invested in the option strategy. You understand the risks of using margin plus shorting and can withstand depositing more money than your initial deposit amount.
Considerable: You can sustain a quick decrease in the value of your option and can lose 100% or more of your investment in your option strategy. For example, you buy a put to hedge your portfolio but the market trades higher-- your investment in the put decreases rapidly and eventually expires worthless. Secondly, after writing a credit spread, the short leg is assigned after the close on the expiration date, resulting in a stock position which is closed at a greater loss than the initial max loss of the spread.
Moderate: Your risk is relatively low and hedged with stock and cash as collateral. You have downside exposure based upon the performance of the underlying stock. Additionally, you also have exposure to unrealized losses on the short options until the expiration date which may exceed the value of the collateral.
Zero: You can’t sustain any unrealized or realized losses in your investment.
Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.