When you use Dash Prime as your broker/dealer, you entrust us not only with your hard-earned assets but also with your personal and financial data. We consider your data to be private and confidential, and we hold ourselves to the highest standards of trust in their safekeeping and use.
We collect non-public personal information about Dash Prime clients such as you, from the following sources:
- Information we receive from you on applications or other forms;
- Information about your transactions with us, our affiliates, or others; and
- If you visit our Web site, information we collect via a Web server, often referred to as a “cookie.” Cookies indicate where a site visitor has been online and what has been viewed.
We do not disclose any non-public personal information about our customers or former customers to anyone, except as permitted by law. Moreover, we will not release information about our customers or former customers unless one of the following conditions is met:
- We receive your prior written consent.
- We believe the recipient to be you or your authorized representative.
- We are required by law to release information to the recipient.
We only use information about you and your account to help us better serve your investment needs or to suggest services or educational materials that may be of interest to you.
To further protect your privacy, our Web site uses security programs and devices, which we believe to be in accordance with current business practices, including data encryption, user names and passwords, and other tools. We maintain physical, electronic and procedural safeguards to guard your personal account information. We also restrict access to your personal and financial data to authorized Dash Prime associates who have a need for these records. We advise you not to send such information to us in non-secure e-mails.
Confidentiality and Security
We maintain physical, electronic and procedural safeguards to guard your personal account information. We also restrict access to your personal and financial data to authorized Dash Prime associates who have a need for these records. We require all nonaffiliated organizations to conform to our privacy standards and they are contractually obligated to keep the information provided confidential and used as requested. Furthermore, we will continue to adhere to the privacy policies and practices described in this notice even after your account is closed or becomes inactive.
We will continue to conduct our business in a manner that conforms with our pledge to you, your expectations and all applicable laws.
Business Continuity Plan (BCP) – Disclosure Statement
We have developed a Business Continuity Plan on how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions is unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, we are providing you with this information on our business continuity plan.
Our Business Continuity Plan – We plan to quickly recover and resume business operations after a significant business disruption and respond by safeguarding our employees and property, making a financial and operational assessment, protecting the firm’s books and records, and allowing our customers to transact business. In short, our business continuity plan is designed to permit our firm to resume operations as quickly as possible, given the scope and severity of the significant business disruption.
Our business continuity plan addresses: data back-up and recovery; all mission critical systems; financial and operational assessments; alternative communications with customers, employees, and regulators; alternate physical location of employees; critical supplier, contractor, bank and counter-party impact; regulatory reporting; and assuring our customers prompt access to their funds and securities if we are unable to continue our business.
Our clearing firms, Apex Clearing Corp, Bank of America Merrill Lynch, and ED&F Man Capital Markets back up our important records in a geographically separate area. While every emergency situation poses unique problems based on external factors, such as time of day and the severity of the disruption, we have been advised by our clearing firms that its objectives are to restore their own operations and be able to complete existing transactions and accept new transactions and payments as soon as practicable under the circumstances with an objective within the same business day. Your orders and requests for funds and securities could be delayed during this period.
Varying Disruptions – Significant business disruptions can vary in their scope, such as only our firm, a single building housing our firm, the business district where our firm is located, the city where we are located, or the whole region. Within each of these areas, the severity of the disruption can also vary from minimal to severe. In a disruption to only our firm or a building housing our firm, we will transfer our operations to a local site when needed and expect to recover and resume business within the same business day. In a disruption affecting our business district, city, or region, we will transfer our operations to a site outside of the affected area, and recover and resume business within the same business day. In either situation, we plan to continue in business, transfer operations to our clearing firm if necessary, and notify you through our customer emergency number, 312-692-9001 how to contact us. If the significant business disruption is so severe that it prevents us from remaining in business, we will assure our customer’s prompt access to their funds and securities.
Contacting Us – If after a significant business disruption you cannot contact us as you usually do at 312 690-2500, you should call our alternative number 312-692-9001. If you cannot access us through either of those means, you should contact our clearing firms, Apex at 214-953-3318, Bank of America Merrill Lynch at 312-347-3632, or ED&F Man at 312-300-5000 for instructions on how it may provide prompt access to funds and securities, enter orders and process other trade-related, cash, and security transfer transactions.
If you have questions about our business continuity planning, you can contact us via phone or mail:
Mail: Dash Prime, LLC
200 South Wacker Dr, Suite 2400
Chicago, IL 60606
Please Note: Our BCP is subject to modification. An updated summary will be promptly posted on our website, www.Dash Primesecurities.com, and customers may alternatively obtain updated summaries by requesting a written copy by mail.
Investor Education and Protection Disclosure
FINRA Rule 2267 requires Dash Prime to provide information about FINRA‟s BrokerCheck program. An investor brochure that includes information describing the BrokerCheck program may be obtained from FINRA. The FINRA BrokerCheck hotline number is (800) 289‐9999. The FINRA web site address is www.FINRA.org.
Anti-Money Laundering Disclosure
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. This notice answers some questions about Dash Prime’s Customer Identification Program (CIP).
What types of information will I need to provide?
When you open an account, we are required to collect the following information:
- Date of birth;
- Address; and
- Identification number:
- S. citizen: taxpayer identification number (Social Security number or employer identification number)
- Non-U.S. citizen: taxpayer identification number; passport number and country of issuance; alien identification card number; or government- issued identification showing nationality, residence and a photograph of you.
- For legal entity customers; the name, address, date of birth and Social Security number (or passport number or other similar information, in the case of non-U.S. persons) for the following individuals (i.e., the beneficial owners):
- A single individual with significant responsibility for managing the legal entity customer (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); and
- Each individual, if any, who owns, directly or indirectly, 10% or more of the equity interests of the legal entity customer (e.g., each natural person who owns 10% or more of the shares of a corporation).
You may also need to show your driver’s license or other identifying documents.
A corporation, partnership, trust or other legal entity may need to provide other information such as its principal place of business, local office, employer identification number, certified articles of incorporation, government issued business license, a partnership agreement or a trust agreement.
US Department of the Treasury, Securities and Exchange Commission, FINRA and NYSE regulation currently require you to provide additional information, such as net worth, annual income, occupation, employment information, investment experience and objectives, and risk tolerance.
What happens if I don’t provide the information requested or my identity can’t be verified?
We may not be able to open an account or process transactions for you. If we have already opened an account for you, it may be closed.
Margin Disclosure Statement
We are furnishing this document to provide you with basic facts about purchasing securities on margin, and to alert you to the risks involved with trading securities in a margin account. Before trading in a margin account, you should carefully review the margin agreement provided by your broker. Consult your broker regarding any questions or concerns you may have with your margin accounts.
When you purchase securities, you may pay for the securities in full or you may borrow part of the purchase price from your brokerage firm. If you choose to borrow funds from your firm, you will open a
margin account with the firm. The securities purchased are the firm’s collateral for the loan to you. If the securities in your account decline in value, so does the value of the collateral supporting your loan, and as a result, the firm can take action, such as issue a margin call and/or sell securities in your account, in order to maintain the required equity in the account.
It is important that you fully understand the risks involved in trading securities on margin. These risks include the following:
You can lose more funds than you deposit in the margin account. A decline in the value of securities that are purchased on margin may require you to provide additional funds to the firm that has made the loan to avoid the forced sale of those securities or other securities in your account.
The firm can force the sale of securities in your account. If the equity in your account falls below the maintenance margin requirements under the law, or the firm’s higher “house” requirements, the firm can sell the securities in your account to cover the margin deficiency. You also will be responsible for any shortfall in the account after such a sale.
The firm can sell your securities without contacting you. Some investors mistakenly believe that a firm must contact them for a margin call to be valid, and that the firm cannot liquidate securities in their accounts to meet the call unless the firm has contacted them first. This is not the case. Most firms will attempt to notify their customers of margin calls, but they are not required to do so. However, even if a firm has contacted a customer and provided a specific date by which the customer can meet a margin call, the firm can still take necessary steps to protect its financial interest, including immediately selling the securities without notice to the customer.
You are not entitled to choose which security in your margin account is liquidated or sold to meet a margin call. Because the securities are collateral for the margin loan, the firm has the right to decide which security to sell in order to protect its interests.
The firm can increase its “house” maintenance margin requirement at any time and is not required to provide you advance written notice. These changes in firm policy often take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause the member to liquidate or sell securities in your account.
You are not entitled to an extension of time on a margin call. While an extension of time to meet margin requirements may be available to customers under certain conditions, a customer does not have a right to the extension.
The IRS requires Broker Dealers to treat dividend payments on loaned securities positions as a “substitute payment” in lieu of a dividend. A substitute payment is not, a “qualified dividend” and is not taxed as ordinary income.
Industry regulations may limit, in whole or in part, your ability to exercise voting rights of securities that have been lent or pledged to others. You may receive proxy materials indicating voting rights for a fewer number of shares than are in your account, or you may not receive any proxy materials.
Day‐Trading Risk Disclosure
You should consider the following points before engaging in a day-trading strategy. For purpose of this notice, a “day-trading strategy” means an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities.
Day-trading can be extremely risky. Day-trading, generally, is not appropriate for someone of limited resources and limited investment or trading experience and low risk tolerance. You should be prepared to lose all of the funds that you use for day trading. In particular, you should not fund day‐trading activities with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership or funds required to meet your living expenses. Further, certain evidence indicates that an investment of less than $50,000 will significantly impair the ability of a day-trader to make a profit. Of course, an investment of $50,000 or more in no way guarantees success.
Be cautious of claims of large profits from day-trading. You should be wary of advertisements or other statements that emphasize the potential for large profits as a result of day trading. Day trading can lead to large and immediate financial losses.
Day-trading requires knowledge of securities markets. Day-trading requires in‐depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, you must compete with professional, licensed traders employed by securities firms. You should have appropriate experience before engaging in day-trading.
Day-trading requires knowledge of a firm’s operations. You should be familiar with a securities firm’s business practices, including the operation of the firm’s order execution systems and procedures. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a stock suddenly drops, or if trading is halted due to recent news events or unusual trading activity. The more volatile a stock is, the greater the likelihood that problems may be encountered in executing a transaction. In addition to normal market risks, you may experience losses due to system failures.
Day-trading will generate substantial commissions, even if the per trade cost is low. Day trading involves aggressive trading, and generally you will pay commissions on each trade. The total daily commissions that you pay on your trades will add to your losses or significantly reduce your earnings. For instance, assuming that a trade costs $16 and an average of 29 transactions are conducted per day, an investor would need to generate an annual profit of $111,360 just to cover commission expenses.
Day trading on margin or short selling may result in losses beyond your initial investment. When you day-trade with funds borrowed from a firm or someone else, you can lose more than the funds you originally placed at risk. A decline in the value of the securities that are purchased may require you to provide additional funds to the firm to avoid the forced sale of those securities or other securities in your account. Short selling as part of your day-trading strategy also may lead to extraordinary losses, because you may have to purchase a stock at a very high price in order to cover a short position.
Potential Registration Requirements. Persons providing investment advice for others or managing securities accounts for others may need to register as either an “Investment Advisor” under the Investment Advisors Act of 1940 or as a “Broker” or “Dealer” under the Securities Exchange Act of 1934. Such activities may also trigger state registration requirements.
Extended Hours Trading Risk Disclosure
Risk of Lower Liquidity
Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier for investors to buy or sell securities, and as a result, investors are more likely to pay or receive a competitive price for securities purchased or sold. There may be lower levels of liquidity in extended hours trading as compared to regular market hours. As a result, your order may only be partially executed, or not at all.
Risk of Higher Volatility
Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater its price swings. There may be greater levels of volatility in extended hours trading than in regular market hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price in extended hours trading to what you might receive during regular market hours.
Risk of Changing Prices
The prices of securities traded in extended hours trading may not reflect the prices either at the end of regular market hours, or upon the opening of the next morning. As a result, you may receive an inferior price in extended hours trading to what you might receive during regular market hours.
Risk of Unlinked Markets
Depending on the extended hours trading system or the time of day, the prices displayed on a particular extended hour’s system may not reflect the prices on other concurrently operating extended hours trading systems dealing in the same securities. Accordingly, you may receive an inferior price on one extended hours trading system than you might receive on another extended hours trading system.
Risk of News Announcements
Normally, issuers release news announcements that may affect the price of their securities after regular market hours. Similarly, important financial information is frequently announced outside of regular market hours. In extended hours trading, these announcements may occur during trading, and if combined with lower liquidity and higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
Risk of Wider Spreads
The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security.
Risk of Lack of Calculation or Dissemination of Underlying Index Value or Intraday
For certain Derivative Securities Products, an updated underlying index value, or IIV, may not be calculated or publicly disseminated in extended trading hours. Since the underlying index value and
IIV are not calculated or widely disseminated during the pre‐market and post‐market sessions an investor who is unable to calculate implied values for certain Derivative Securities Products in those sessions may be at a disadvantage to market professionals.
Electronic Order Routing, Trading Systems, High Volumes and Trading Delays Disclosure
Dash Prime allows you to utilize third-party manual and automated trading applications, designed for order entry, routing and position management. In many cases these applications connect to our Order Management System (OMS) for the purpose of processing your order messages and routing your orders to the marketplace. Together, the trading applications and Dash Prime’s OMS shall be referred to as the Trading System. Numerous features have been designed to prevent Trading System failure. However, it is possible that service could be interrupted. In that event, you may not be able to access the Trading System to enter new orders, and/or modify or cancel orders previously entered. Any computer system or network, whether it is yours, your internet service provider’s, or ours, can experience unscheduled breakdowns, outages or slowdowns. Communication lines, telephone or other interconnection can experience similar problems. Regardless of systems problems, if trading volumes are high, orders might not be filled as quickly as when volumes are normal. Although Dash Prime has taken precautions, we cannot ensure complete reliability of the Trading System under all circumstances. In the event of Trading System problems, customers may attempt to place liquidating (closing) orders by calling the Dash Prime trade desk at 312-690-2500. If Trading Systems are down, we may not accept orders to open new positions. Dash Prime does not guarantee that these means will be available to you at a particular time. You agree that if access to the Trading System is not available, you must call us in order to access your account and you understand that during times of high call volumes, you may experience significant delays connecting to our trade desk or client service group.
NO LIABILITY FOR THIRD-PARTY TRADING APPLICATIONS. YOU ACCEPT THAT Dash Prime BEARS NO RESPONSIBILITY FOR ANY THIRD-PARTY TRADING APPLICATION YOU ELECT TO USE, WEATHER OR NOT SUCH APPLICATION IS LINKED TO THE Dash Prime ORDER MANAGEMENT SYSTEM (OMS) OR ANY OTHER Dash Prime SYSTEM. THIRD PARTY TRADING APPLICATIONS ARE NOT HOSTED, MAINTAINED OR MONITORED BY Dash Prime AND Dash Prime MAKES NO CLAIMS OR WARRANTIES RELATED TO THEIR SUITABILITY, PERFORMANCE OR RELIABILITY. UNDER NO CIRCUMSTANCES SHALL Dash Prime BE LIABLE FOR ANY DIRECT, PUNITIVE, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL LOSS OR DAMAGES, INCLUDING LOSS OF BUSINESS, PROFITS OR GOODWILL ARISING FROM THE USE OF A THIRD-PARTY TRADING APPLICATION.
LIMITATION OF LIABILITY. YOU ACCEPT THAT ALL Dash Prime’S SYSTEMS ARE “AS IS,” AND WITHOUT WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR USE, PURPOSE OR APPLICATION; TIMELINESS; FREEDOM FROM INTERRUPTION; OR ANY IMPLIED WARRANTIES ARISING FROM TRADE USAGE, COURSE OF DEALING OR COURSE OF PERFORMANCE. UNDER NO CIRCUMSTANCES SHALL Dash Prime BE LIABLE FOR ANY PUNITIVE, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL LOSS OR DAMAGES, INCLUDING LOSS OF BUSINESS, PROFITS OR GOODWILL ARISING FROM THE USE OUR SYSTEMS. Dash Prime SHALL NOT BE LIABLE TO YOU BY REASON OF DELAYS OR INTERRUPTIONS OF SERVICE OR TRANSMISSIONS, OR FAILURES OF PERFORMANCE OF OUR SYSTEM, REGARDLESS OF CAUSE, INCLUDING, BUT NOT LIMITED TO, THOSE CAUSED BY HARDWARE OR SOFTWARE MALFUNCTION; GOVERNMENTAL, EXCHANGE OR OTHER REGULATORY ACTION; ACTS OF GOD; WAR, TERRORISM, OR OUR INTENTIONAL ACTS. YOU RECOGNIZE THAT THERE MAY BE DELAYS OR INTERRUPTIONS IN THE USE OF OUR SYSTEM, INCLUDING, FOR EXAMPLE, THOSE CAUSED INTENTIONALLY BY US FOR PURPOSES OF SERVICING THE SYSTEM. YOU ACKNOWLEDGE THAT ALTERNATIVE TRADING ARRANGEMENTS ARE AVAILABLE BUT Dash Prime DOES NOT GUARANTEE THAT ALTERNATIVE TRADING ARRANGEMENTS WILL BE AVAILABLE AT A PARTICULAR TIME AND Dash Prime WILL NOT BE HELD LIABLE FOR DELAYS IN ENTERING AN ORDER. IN NO EVENT SHALL Dash PrimeS LIABILITY, REGARDLESS OF THE FORM OF ACTION AND DAMAGES SUFFERED BY YOU, EXCEED THE COMMISSIONS AND FEES PAID BY YOU TO Dash Prime IN THE MONTH IN WHICH THE ACTION AROSE.
During periods of heavy trading volume and during periods of high Internet traffic, customers utilizing an on-line trading system (aka electronic trading platform or website) can experience delays in execution and executions can occur at prices significantly away from the market price quoted at the time the order is entered. These execution delays could cause you to experience market losses.
- High volumes of trading may cause delays in execution and executions at prices significantly away from the market price quoted or displayed at the time the order was entered. During periods of high volume trading Market Makers may execute orders manually or reduce their size guarantees resulting in delays in order execution and losses.
- There are benefits and risks to placing market and limit orders. A market order will be executed fully and promptly regardless of price. The execution may be at a price significantly different from the current quoted price. Limit orders will be executed at a specified price or better. This will provide price protection but there is no guarantee that the order will be executed.
- During periods of high Internet traffic you may have difficulty in accessing your account. If this occurs, dial 312-690-2500 for assistance in placing your order.
- If you are trading on margin, the Company or its clearing broker has the right to raise maintenance margin requirements for stocks that the Company or the clearing broker determine to be volatile. The rationale for this increase is to help ensure that the equity in your margin account is sufficient to cover large changes in the price of a stock. The Company or its clearing broker at its option may prohibit the purchase of a stock on margin due to a stock’s volatility.
- During a volatile trading day there may be delays in receiving trade reports. If you have placed a market order and not received a report confirming the execution this does not mean that your order has not been executed. Market orders are executed as promptly as possible. If you cancel a market order and enter a second order you may be responsible for duplicate orders.
SIPC Protection Coverage
Dash Prime, LLC is a member of the Securities Investor Protection Corporation (“SIPC”), which currently protects securities customers of its members up to $500,000 (including $100,000 for claims for cash). An explanatory brochure is available upon request at www.sipc.org, or call SIPC at (202) 371-8300
Please note that money market mutual fund balances are not considered cash; they are considered to be securities.
Account protection does not cover the market risks associated with investing, unsuitability or issuer default.
Payment For Order Flow and Order Routing Disclosure
Pursuant to federal securities regulations, Dash Prime LLC (Dash Prime) is required to disclose at the time your account is opened, and annually thereafter, our payment for order flow practices.
The firm may receive remuneration for directing orders to a particular broker or dealer, through which your transaction is executed. Such remuneration is considered compensation to us and the source and amount of any compensation will be disclosed upon request.
Equities: Dash Prime routes your equity orders to broker-dealers or market centers for execution. These broker-dealers and market centers may include dealers who make markets in these securities and in some cases we may receive remuneration for directing orders to them. The remuneration may come in the form of a rebate or in the form of a spread between the execution fee we charge you and what the broker dealer or market center charges Dash Prime for executing the order.
Options: Dash Prime may receive payment for routing your options orders to designated broker-dealers or market centers for execution. Compensation, if any, is in the form of a per contract payment. The source and amount of any compensation received in connection with your options transaction will be disclosed upon written request.
SEC Rule 606 requires all broker-dealers that route customer held orders in equity and option securities to make publicly available quarterly reports that, among other things, identify the venues to which customer orders are routed for execution and also disclose the material aspects of the broker-dealer’s relationship with such venues.
Dash Prime does not make order routing decisions on behalf of clients who send us held orders. We display all available routes on your trading platform’s order entry screen and leave it to you to choose your routing destination at the time you place each order. Therefore, all held customer orders received by Dash Prime are considered to be “directed” and not subject to the public disclosure requirements of Rule 606. However you may still request information about where your held and not-held orders were routed, and we’ll be happy to provide you with all account-specific routing data.
We also provide you with additional information to eliminate any potential ambiguity about where you are directing your orders. In most cases, the route you select (ex: NASD, ARCA, CBOE, ISE, CTDL) bears the name or acronym of the exchange or broker to which you want the order routed. However, in other cases the route bears the name of a specific Algo or smart router (ex: SMGD, SMPT, VWAP) offered by the venue to which you are directing your order, but it may not explicitly identify the venue itself. So that you can be sure that you always know the identity of the venue to which you are directing your order, we provide you with a glossary which identifies each execution venue associated with the route names and acronyms displayed in your trading platform. The glossary can be found on our ePorts reporting portal (i.e. customer website, post login) in the Notifications section or simply by accessing this URL: https://reports.Dash Primesecurities.com/clients/alerts.php.
You can also find links on our website to the SEC Rule 606 order routing disclosure reports for any executing brokers to which you route through Dash Prime. These reports will provide you with additional information about how these brokers handle your orders.
Options Trading Disclosures
I understand that options trading is highly speculative and contains a high degree of risk and that options trading is not suitable for all investors. I agree that prior to completing the “Options” section of the Account Application I will carefully review and consider my financial situation, risk tolerance, and investment objectives. I will only apply for an Options Account if, based on that review, I am fully prepared financially to undertake such risks, withstand any and all losses incurred, including total loss of premium, plus transaction costs. I understand that Dash Prime reserves the right to terminate or restrict my options trading privileges if it determines that my trading activities or option positions present a risk to Dash Prime.
Prior to buying or selling an option, investors must read a copy of the Characteristics & Risks of Standardized Options, also known as the options disclosure document (ODD) as well as the November 2012 and October 2018 Supplement to Characteristics and Risks of Standardized Options. These documents explain the characteristics and risks of exchange traded options. Copies of these documents may be obtained from Dash Prime, from any exchange on which options are traded or by contacting the Options Clearing Corporation directly at 1 N. Wacker Dr., Suite 500, Chicago, IL 60606. (1-888-678-4667) or via the OCC website at https://www.optionsclearing.com/about/publications/character-risks.jsp.
Special Statement for Uncovered Options Writers
There are special risks associated with uncovered option writing which expose the investor to potentially significant loss. Therefore, this type of strategy may not be suitable for all customers approved for options transactions.
- The potential loss of uncovered call writing is unlimited. The writer of an uncovered call is in an extremely risky position, and may incur large losses if the value of the underlying instrument increases above the exercise price.
- As with writing uncovered calls, the risk of writing uncovered put options is substantial. The writer of an uncovered put option bears a risk of loss if the value of the underlying instrument declines below the exercise price. Such loss could be substantial if there is a significant decline in the value of the underlying instrument.
- Uncovered option writing is thus suitable only for the knowledgeable investor who understands the risks, has the financial capacity and willingness to incur potentially substantial losses, and has sufficient liquid assets to meet applicable margin requirements. In this regard, if the value of the underlying instrument moves against an uncovered writer’s options position, the investor’s broker may request significant additional margin payments. If an investor does not make such margin payments, the broker may liquidate stock or options positions in the investor’s account, with little or no prior notice in accordance with the investor’s margin agreement.
- For combination writing, where the investor writes both a put and a call on the same underlying instrument, the potential for risk is unlimited.
- If a secondary market in options were to become unavailable, investors could not engage in closing transactions, and an option writer would remain obligated until expiration or assignment.
- The writer of an American-style option is subject to being assigned an exercise at any time after he has written the option until the option expires. By contrast, the writer of a European-style option is subject to exercise assignment only during the exercise period.
NOTE: It is expected that you will read the booklet entitled Characteristics and Risks of Standardized Options available from us via our company website, Dash PrimeSecurities.com. In particular, your attention is directed to the chapter entitled Risks of Buying and Writing Options. This statement is not intended to enumerate all of the risks entailed in writing uncovered options.
Stop Order Disclosure
While stop orders may be a useful tool for investors who are unable to regularly monitor the price of their positions, stop orders are not without potential risks. Before entering any stop orders, you should be aware of the following:
- Stop prices are not guaranteed execution prices. A “stop order” becomes a “market order” when the “stop price” is reached and firms are required to execute a market order fully and promptly at the current market price. Therefore, the price at which a stop order ultimately is executed may be very different from the investor’s “stop price.” Accordingly, while a customer may receive a prompt execution of a stop order that becomes a market order, during volatile market conditions, the execution may be at a significantly different price from the stop price if the market is moving rapidly.
- Stop orders may be triggered by a short-lived, dramatic price change. Customers should be informed that, during periods of volatile market conditions, the price of a stock can move significantly in a short period of time and trigger an execution of a stop order (and the stock may later resume trading at its prior price level). Investors should understand that if their stop order is triggered under these circumstances, they may sell at an undesirable price even though the price of the stock may stabilize during the same trading day.
- Sell stop orders may exacerbate price declines during times of extreme volatility. The activation of sell stop orders may add downward price pressure on a security. If triggered during a precipitous price decline, a sell stop order also is more likely to result in an execution well below the stop price.
Placing a “limit price” on a stop order may help manage some of these risks. A stop order with a “limit price” (a “stop limit” order) becomes a “limit order” when the stock reaches the “stop price.” A “limit order” is an order to buy or sell a security for an amount no worse than a specific price (i.e., the “limit price”). By using a stop limit order instead of a regular stop order, a customer will receive additional certainty with respect to the price the customer receives for the stock. However, investors also should be aware that, because brokers cannot sell for a price that is lower (or buy for a price that is higher) than the limit price selected, there is the possibility that the order will not be executed at all. Customers should be encouraged to use limit orders in cases where they prioritize achieving a desired target price more than getting an immediate execution irrespective of price.