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It appears to me that retail investors can only buy calls and puts, but not short them through any standardized way (except maybe borrowing the option from a friend ;) ).

Is that correct, or how can I short puts/calls (directly without replication)?

More specifically, I assume there are standard options on S&P500 and I would want to take one of these existing retail options and betting short on it (through a standalone product). The view is to be from a U.S. retail investor.

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    $\begingroup$ You need a margin account with your broker which requires a higher minimum than a standard account, then you can short puts or calls. $\endgroup$ – pyCthon Jun 9 '15 at 18:15
  • $\begingroup$ @pyCthon Can you confirm this is possible for retail investors in the U.S. also? Can you give a source for these broker requirements? Then I would accept your answer ; ) $\endgroup$ – emcor Jun 9 '15 at 18:20
  • $\begingroup$ What possible reason would borrowing options serve? I bet you can fulfill your objective in a more straightforward way $\endgroup$ – baerrus Jun 9 '15 at 20:07
  • $\begingroup$ @baerrus Did you know that e.g. put options have -40% return per month on average? So its actually quite reasonable to short them, however it seems to be more complicated than one would expect. $\endgroup$ – emcor Jun 10 '15 at 8:28
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    $\begingroup$ @emcor If you were to sell a put and collect the premium and then cover the position at 40% of the premium then yes you have made 40% of the value of the sold put. However, your return on capital (ROC) will be far less due to margin requirements. Remember that when talking about returns we must ask with respect to what (in this case with respect to the premium collected). $\endgroup$ – Joseph Zambrano Jun 11 '15 at 11:34
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Given one satisfies margin requirements anyone can short exchange traded options as long as local regulators permit (American retail investors at present are not permitted, for example, to trade futures options . As long as there is a market and one finds a willing counterpart nothing speaks against shorting options contracts. Some brokers might require a hedge in place such as holding long stock inventory when selling calls. But there are no regulations in place at any of the exchanges (to my knowledge) that prevent retail from selling options.

Also, some brokers even offer the shorting of retail geared otc options contracts though it is quite rare.

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  • $\begingroup$ Can you confirm, that for S&P500, a retail investor can without problem short standard puts on this index (on margin)? $\endgroup$ – emcor Jun 9 '15 at 15:19
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    $\begingroup$ Yes why not? Of course it depends on certain requirements. For example US citizens (possibly even residents) may not be permitted to trade specific options contracts. $\endgroup$ – Matthias Wolf Jun 9 '15 at 15:21
  • $\begingroup$ Thanks, this is actually a very important point. Is it so that a U.S. retail investor could not short S&P500 standard options by law? I think in Germany it is also forbidden for retail investors to short options (due to the unlimited liability issue). $\endgroup$ – emcor Jun 9 '15 at 15:25
  • $\begingroup$ @emcor: No, retail investors can short options in Germany - not a problem. $\endgroup$ – vonjd Jun 9 '15 at 16:15
  • $\begingroup$ @emcor: Sorry, no idea. $\endgroup$ – vonjd Jun 9 '15 at 18:19
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It depends on the derivatives exchange but e.g. Eurex exchange can also be used by retail investors as long as they are qualified (concerning their max. risk level) and their bank offers access to it (some at least do that).

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  • $\begingroup$ Can you please add a more specific source than the exchange link? I am looking for a way to short existing retail market options issued by large financial institutions, not to sell like my own tiny option or borrow the option from friends... $\endgroup$ – emcor Jun 9 '15 at 15:02
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    $\begingroup$ @emcor, what do you exactly mean with "issued by large financial institutions". Options are either exchange traded in which case there is no financial institution that "issues" options contracts or you are referring to otc options. Can you please clarify? $\endgroup$ – Matthias Wolf Jun 9 '15 at 15:10
  • $\begingroup$ @MattWolf I assume there are standard options e.g. on S&P500 just like standardized futures contracts? I will add this to the question. I just wanted to emphasize I do not seek to sell my own little option but to take an existing option and betting short on it (through a standalone product). $\endgroup$ – emcor Jun 9 '15 at 15:15
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    $\begingroup$ There is no standard vs non standard. Options are options, whether written on corn or toys or a stock index. You can short an option, one of which you do not hold long inventory at any exchange that lists options contracts (subject to certain exchange regulations such as margin requirements). Please see my answer $\endgroup$ – Matthias Wolf Jun 9 '15 at 15:19
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    $\begingroup$ I do not like to hijack this comment section. Please check out some basic text on exchange traded options as your assumptions are quite incorrect. $\endgroup$ – Matthias Wolf Jun 9 '15 at 15:40
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Of course you can sell options and you can certainly sell options on most major indices. Thinkorswim (TDAmeritrade) offers and excellent platform. Moreover, one can short options without "full" account privileges provided a defined risk trade is entered (such as an iron condor or call spread)

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Maybe interactive brokers do it, see here

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  • $\begingroup$ As I understand this tool, I could sell my own individual option, but I am actually looking for a way to short existing retail market options issued by large financial institutions. $\endgroup$ – emcor Jun 9 '15 at 15:00
  • $\begingroup$ then you need an option spreadbetter like IG $\endgroup$ – rupweb Jun 12 '15 at 7:28

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