Tag Archives: charlesschwab

Can non-US residents trade US options?

The short answer

Yes!

What are options?

First off, this post is not the right place to learn all about options. Options trading is not for everyone as options are riskier than stocks. Nevertheless, here are the basics: A call option is a contract that allows you to buy 100 shares of stock of a company at a particular strike price. For example, Ford Motor Company shares are currently prices at $8.10. A call option for Ford with a strike price of $10 and expiration date of September 18, 2020 can be purchased for a premium of $0.13 (x 100 shares = $13). The break-even price is the sum of the strike price and the premium:$10.13. Since Ford’s current price is below the option’s strike price, the option is said to be out-ofthe-money (OTM). If Ford’s stock price goes above the $10 strike price, then the option is said to be in-the-money (ITM).

The option premium can move up and down with the price of the stock, as it goes closer or farther to being ITM. Option premiums are also generally higher for volatile stocks. You can sell the option before the expiration date at a profit or loss. If you hold the option until the expiration date and it is OTM, then the option will simply expire and you lose the premium you paid. If you hold the option until the expiration date and it is ITM, then may execute the option and actually buy 100 shares of ford for $10 each (x100 = $1,000). If, for example, Ford’s price at expiration $11 and you execute the call option and sell the stocks right away, then your total profit is $100-$13 (premium) = $87 or a more than 600% gain. If you used the same $13 to buy 1.60 shares of Ford (at $8.10 each) assuming fractional shares area allowed), then you only gain $4.60 if Ford’s price increased to $11.

This illustrates the leveraged nature of options: for the same amount of money, you can potentially have much higher gains buying options than buying stocks. The counterpoint is you can LOSE the entire premium if the bet does not go your way (e.g. the option expires OTM). On the other hand, if you simply bought Ford stock, then at least you can continue holding those shares until it hits your target.

The second type of option is the put option. This is a contract that allows you to sell 100 shares of stock of a company at a particular strike price. Many of the things I discussed about call options apply except in the “opposite” manner. ITM put option means share price is below the strike price. OTM option means share price is above the strike price. The break-even price is the strike price minus the premium paid. You can buy put options if you are betting that the stock price will go down. You can also use put options to hedge against a downward move in the stocks that you own.

How to get started with options trading

When opening a brokerage account with the likes of Charles Schwab or Interactive Brokers, you are typically only given stock trading privileges by default. During the application process, you would have to explicitly ask for options trading capabilities to be enabled in your account. Since options are generally riskier than stocks and offer a variety of trading strategies with increasing levels of risk, brokers typically want to make sure that you are aware of such risks involved.

When I initially applied for my Charles Schwab account, I indicated that I wanted to have options trading enabled in my account. They then sent me an email asking me to call about my options trading application. I was too lazy to make that call so when my brokerage account was finally approved, options trading was not enabled. At that time, I still had my Robinhood account where I can trade options as well. A few months later, I again lodged my application for options trading with Charles Schwab. In the application, they ask for your options trading knowledge level (None, Limited, Good, Extensive), experience (how many years), number of trades per year, and amount per transaction.

Schwab then again asked me to call them. When I did, they asked me about my income, and what trading strategies I am pursuing. They also asked what amount of my brokerage account I will use to trade options, and how I would react if I lose that entire amount. Schwab has four option approval levels, and I applied for and was approved for Level 1.

How much does it cost to trade options?

While Schwab does not charge any commission to buy and sell stocks, it does charge $0.65 per option contract. This fee applies for both buying and selling. For example, that Ford call option with $0.13 premium describe above, will actually cost $13.65 (100*$0.13 + $0.65) to purchase.

Using my Schwab card at 7-Eleven (7-11) Japan ATMs

Last time I traveled to Japan in March 2019, I use my Capital One 360 Mastercard ATM card to withdraw cash from 7-11 ATMs. Capital One 360 does not charge any foreign transaction fees and at at that time 7-11 ATMs did not charge any ATM fee. In addition to my Capital One 360 card, I now have a Charles Schwab Visa ATM card which promises to refund ATM fees. Recently, I’ve read reports that 7-11 ATMs have started charging fees to international ATM card holders. I returned to Japan last week and found out out for myself if the reports are correct.

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Best international broker for Philippine residents: Charles Schwab vs Interactive Brokers

For Philippine residents who want to venture into the international stock market, there are really just a few legitimate options available. For this matter, I don’t consider the likes of eToro and Abra as legitimate platforms for the serious investor or trader. The top three choices for Philippine residents are Charles Schwab, TD Ameritrade, and Interactive Brokers (IBKR). Since Charles Schwab is acquiring TD Ameritrade, I’m only covering Schwab and IBKR. So which one is better for Philippine residents?

(Note that if you’re a Philippine resident and also an American citizen, many of the issues raised here are not applicable to you.)

Continue reading Best international broker for Philippine residents: Charles Schwab vs Interactive Brokers

Charles Schwab vs Capital One 360 ATM Exchange Rate

As a follow up to my previous post comparing effective ATM exchange rates for withdrawing Philippine pesos from US dollar accounts from Charles Schwab and Transferwise, I now compare Charles Schwab and Capital One 360.

Continue reading Charles Schwab vs Capital One 360 ATM Exchange Rate

TransferWise vs Charles Schwab Exchange Rate at a Philippine ATM

TransferWise is an online money transfer fintech company. What’s great about them is they try to be transparent with their fees for transferring money internationally. They promise the best exchange rate possible, but they do charge fees for ACH bank transfers that are otherwise free for regular banks. In most cases they are cheaper than using wire transfer through your bank or services like Western Union or MoneyGram. They also offer a product called the Borderless account which allows you to have multiple currencies in your account. It also comes with an ATM/debit card you can use internationally. This service seems to be popular with so-called digital nomads. I guess this is also a good account for getting cash when you are travelling internationally.

Continue reading TransferWise vs Charles Schwab Exchange Rate at a Philippine ATM

Opening a Charles Schwab Brokerage Account from the Philippines

In the process of moving from the US back home to the Philippines, I had to make certain arrangements with regard to my financial assets in the US. I maintained taxable equity accounts with Wealthfront and Robinhood, both of which do not cater to non-resident aliens. While I was a “resident alien for tax purposes” while I was living in the US, I am now properly classified as a non-resident alien after returning to the Philippines.

Many such brokerages in the US do not cater to non-resident aliens and even US citizens living abroad because there are a lot of regulations to comply with (FATCA, among others). Fortunately, the bigger online brokers like Charles Schwab, TD Ameritrade, and Interactive Brokers do make their services available to non-resident aliens.

Continue reading Opening a Charles Schwab Brokerage Account from the Philippines