Who is eligible to trade options?

  Clients should understand thoroughly the risks and opportunities associated with trading options and should read the document entitled Characteristics and Risks of Standardized Options before engaging in any options transactions. Note: Options involve risk and are not suitable for all investors.

Clients will be authorized to trade options after being reviewed as to suitability, assets, liquidity, investment objectives and risk tolerance. Clients must also be approved for each specific option strategy (i.e., equity calls/puts, index calls/puts).

What online research and educational tools are available for Merrill Lynch option traders?

The Options Finder is available to assist you in finding a specific option series that will meet your stated scanning criteria. It allows you to set filtering criteria on option type, expiration date, strike price range, and premium. Then it scans current equity holdings and suggests possible covered call or protective put positions which match the specified criteria for those holdings. The tool also allows you to manually input stock symbols if you wish to search equities which are not part of your current portfolio. The scanning results are displayed together with options analysis data calculated for each position.

The Options List is another tool which allows you to search for an option series by setting a broader filtering criteria on symbol, option type, expiration range, and strike price.

The Options Education Site provides detailed educational material and other resources on option trading and strategies.

What option products can I trade online?

If a client is approved for all Merrill Lynch OnLine options capabilities, the following option security types will be allowed:

1) Listed Equity Options (Including LEAPS^®)
2) Listed Index Options (Including LEAPS^®)

Can I place complex strategies via the Web site such as spreads and straddles, or do I have to call these orders in to a broker?

At present, only simple option orders can be entered online including: Buy Call to Open (BCO), Buy Put to Open (BPO), Sell Covered Call to Open (SCCO), Sell Call to Close (SCC), Sell Put to Close (SPC), and Buy Covered Call to Close (BCCC).

Qualified Merrill Lynch OnLine clients can call their Financial Consultants to place orders for complex strategies.

If I have a pre-existing Merrill Lynch OnLine account but am not approved for options trading, how do I get approved to trade options?

Note: Options involve risk and are not suitable for all investors.   All clients must be approved separately for options trading for each account. If you have a Merrill Lynch OnLine account, contact your Financial Consultant to receive the application.

If I have a pre-existing Merrill Lynch account that is approved for options trading but not for online options order entry, how do I enroll?

Clients who wish to trade options online must enroll in Merrill Lynch OnLine and in Client Order Entry and must request options trading approval for the enrolled account(s). Contact your Merrill Lynch Financial Consultant for more details.

What types of options trades could I do in a cash account? In a margin account?

At present, all of the types of option trades permitted online may be done in a cash account; none have to be done in a margin account. However, while puts and calls are not marginable, they can be purchased in a margin account. The types of trades permitted currently are: Buy Call to Open (BCO), Buy Put to Open (BPO), Sell Covered Call to Open (SCCO), Sell Call to Close (SCC), Sell Put to Close (SPC), and Buy Covered Call to Close (BCCC). Opening option transactions will require payment in full.

What are the minimum option equity requirements for covered options in margin accounts?

If you maintain a margin account and enter into covered option writing, you are required to maintain an equity level that is at least 20% of your option short market value plus $2,000.

Once your Merrill Lynch OnLine account is established, the short market value of the options can be determined by clicking the "Accounts" tab, then clicking on "Holdings" within the accounts page. Additional information on option equity requirements for covered options in margin accounts may be obtained via the Margin Tutorial.

Note that the minimum option equity requirement does not apply if you maintain a cash account.

Do you offer any tutorials for options investors?

To learn more about options, you should read the Options Tutorial.

To learn how to use the Options Finder to best find the option series that meet your criteria, see the Options Finder Tutorial.

Note: Options involve risk and are not suitable for all investors.   Prior to buying or selling an option, you should carefully read the booklet entitled Characteristics and Risks of Standardized Options. Please refer to this document to learn more about options.

To learn more about option trading and strategies, visit our Options Education Site.

What types of options trades can I do in a Retirement account? In a fiduciary account?

At the present time, the only types of trades permitted in retirement accounts and fiduciary accounts are Sell Covered Call to Open (SCCO) and Buy Covered Call to Close (BCCC).

What are the tax implications of options writing?

It is advisable that you contact your personal tax advisor for information pertaining to option writing and how it affects your individual tax situation.

Do you automatically close IN THE MONEY positions?

Unless you notify your Financial Consultant that you do not wish to exercise prior to close of business on the Friday prior to expiration (or last business day in the case of a holiday), all equity options that are in the money 3/4 of a point or more and index options that are in the money one penny or more will be handled in the following manner:

Long Call Equity Positions:
The option will be exercised provided the value of all expiring long call options, when exercised, will be below the Maximum Trade Value, i.e., there are sufficient funds, margin excess, or marginable securities on deposit in the account to purchase the underlying security (ies) at the strike price. If the value of all expiring long call options, when exercised, exceeds the Maximum Trade Value, all positions may be closed or exercised at the discretion of Merrill Lynch. Full utilization of the Maximum Trade Value may require funds (for cash or margin accounts) and/or marginable securities (for margin accounts) to be deposited by due date of the commitment.

Long Put Equity Position:
If you hold the underlying stock, the option will be automatically exercised at expiration if it is $0.75 in the money.

If you do not hold the underlying stock, the position will be closed.

Index Options:
All expiring index options that are in-the-money by $.01 or more will be exercised for cash settlement.

Note: If Merrill Lynch does not close an open position due to timing issues, market volatility or otherwise, and an exercise occurs, if the cost exceeds the Maximum Trade Value, Merrill Lynch has the right to close out the exercised shares. It is the client’s responsibility to monitor the positions near option expiration and to close out the position if exercise is not desired.

Are there limits on the size of an options trade?

No, but online transactions are limited to 100 contracts. For trades greater than 100 contracts, you must call and speak to a Service Associate.

Are there a maximum number of trades I can place a day in options?

No, as long as you stay within the maximum trade value, there is no limit to the number of option trades that can be placed in one day.

What is settlement for option contracts?

All option contracts settle on Trade Date + 1.

Is there after hours trading on options?

No, options generally are traded on U.S. Options markets during normal daytime business hours of U.S. securities exchanges (9:30 AM NYT to 4:02 PM NYT for equity options and 9:30 AM NYT to 4:15 PM NYT for index options). At present, the trading of options is not available during extended hours trading.

Do I have to notify Merrill Lynch of changes in my financial situation or employment?

Yes. In the Standard Options Agreement that you sign, you agree to advise Merrill Lynch of any changes in your financial situation and needs, experience, or investment objective.

Can I transfer contracts that are within 1 week of expiration?

No. Contracts must be more than 1 week away from expiration in order to be transferred into a Merrill Lynch OnLine account.

On which exchanges does Merrill Lynch execute orders?

Equity options trade on the following exchanges:

• The American Stock Exchange (AMEX)
• The Chicago Board Options Exchange (CBOE)
• The Pacific Stock Exchange (PCX)
• The Philadelphia Stock Exchange (PHLX)
• International Securities Exchange (ISE)

Do I earn interest on option premiums received?

If there is a net credit balance in the account, the premiums received will be swept into a money market account and receive interest as any other cash balance would in your account.

What is a covered call versus an uncovered call? If I am long stock in a Merrill Lynch OnLine account and write a call in a Merrill Lynch Direct account, will I be considered covered?

Covered call writing refers to a strategy in which one sells call options in the same account in which one owns an equivalent position in the underlying security or strategy. Therefore, a call option would not be considered covered if the underlying security was held in a different account.

Uncovered (or naked) refers to a strategy in which the writer does not own an equivalent position in the underlying security represented by his option contracts (in the case of uncovered calls). Uncovered option strategies are not permitted in Merrill Lynch Direct accounts.

Can I use the proceeds from covered writing for purchases of stock?

Yes , if you maintain a cash account. However, if you maintain a margin account, you must maintain a minimum option equity requirement which limits the amount of proceeds that may be used. For more information about trading in margin accounts, click here: Merrill Lynch OnLine Margin Tutorial.

If I buy underlying stock, am I covered as of trade date or settlement date?

You will be considered covered the day that you purchase the stock. You do not have to wait for settlement.

How many shares of stock does a normal option contract cover?

Generally an option contract covers 100 shares of stock. Due to splits or mergers the amount may be different. The Options List will display the number of shares of the underlying security that one option contract is equivalent to.