I was with OptionsHouse for years until they were bought by E*TRADE in 2016. OptionsHouse was a smaller brokerage, ahead of it’s time, providing a wonderful and intuitive mobile platform for options traders. I make option trades that primarily consist of defined credit spreads. OptionHouse software fit hand in hand with how I traded.

I rarely need to call a brokerage for help. I can count on one hand the times that I’ve had to call into a brokerage over the past 20 years. When I did call, OptionHouse staff was always prompt, knowledgeable, courteous and professional. I was a little weary when they got purchased by E*TRADE. I opened accounts with both TD and IB just in case there were issues.

I ended up sticking with E*TRADE because it was a fairly smooth transition. The only issue I initially had was that they were not honoring the lower fees I had with OptionsHouse. I told them I was shopping brokers. The E*TRADE support staff were friendly and knowledgeable. They passed my request to the appropriate team and I received notice the next day that they would honor my OptionHouse fees. Later on, I asked about lowering my option contract fees. They lowered my option contract fees from 65 cents to 35 cents a contract. This was just icing on the cake since it saved me roughly half on trading fees, so I stuck with them.

I have never had any issues with E*TRADE until they recently got purchased by Morgan Stanley in 2020. The platform started hiccupping and when issues arose I would be put on hold for over an hour on the phone.

The straw broke the camel’s back, for me, is when I had a margin Day Trade Call in which I needed to deposit 450 thousand dollars to cover margin. That was my screw up, I was not paying attention to the wild swings in a TSLA trade that caused the flag and my intraday buying power dipped below the buying power margin. This is a FINRA rule and you get slapped on the wrist. This is the first time this ever happened to me in my trading career.

Failure to meet the margin calls restricts your account for 90 days and you are limited to just cash buying power instead of 2x the buying power that E*Trade allowed. That was not an issue since I had enough cash in the account to continue making my regular weekly trades, within buying power, that were my breadwinners and a weekly paycheck. I would take my lumps and just ride out the 90 days to clear the margin call restriction.

Apparently, the margin call flag got the E*TRADE risk management department involved and they were watching me. I was putting on my normal weekly trades, they were closing them out on Fridays before expiration even though the trades were out of the money and would have expired worthless. I am an options seller and I make my money on premium decay when options expire out of the money. The risk management team cost me money and closed these trades out at market price. That did not bother me as much as it was the fact that someone was watching my account and arbitrarily closing out my trades.

I called customer service. I was on hold for 1hour and 20 minutes. The CSR could not answer my question of why my trades were being closed out. He put me on hold again to so he could find out what was going on. Instead of letting me speak to the risk management department, who was doing this, he just regurgitated what they had told him. He was nice, but I could hear the tension in his voice of an overworked employee. I would not want that job.

I was told that my trades would be closed out if they came within 2 percent of touching the strike price. I stated that these were defined risk Iron Condors and it makes no sense for them to close out these positions when I am monitoring them and they are out of the money. Even if the trade went south I still had more than enough to cover any losses.

As this made no sense to me, I was not sure on how they were deciding my spreads were risky. I decided to use their online messaging system hoping it gets to the correct person. The transcript is below.

(12/18/2020 03:36 PM) (Ref No.: xxxx293)Our records indicate that you have been contacted via chat, phone, or Secure Message regarding message # xxxx293 submitted to E*TRADE on 12/18/2020 03:23:36 PM.

If you feel that your message was not properly addressed or you need further assistance, please reply to this message or contact customer service at 1-800-ETRADE-1 (1-800-387-2331).

(12/18/2020 04:55 PM) (Ref No.: 9100293)I still need two questions answered from the risk management department.

1) I have been doing these same 1 day to expiration Defined Risk spreads on AMZN and GOOGL for months, which my account has more than enough to cover if the trade went against me. I have had no issue until today and the trades were closed out by the risk management team.

These two trades ended up expiring worthless and I would have made approx an $840 profit today.

Instead, your risk team closed these two defined risk trades out early at market price which cost me a loss of approximately $900 in my account. This was approx -$602 on the AMZN trade, -$238 on the GOOGL trade, plus regular fees, and a margin liquidation fee of $50 fee.

The defined risk was approx $6600 on each trade. I had more than enough in my account to cover that.

So, why were these defined risk trades closed?

2) I do not want my defined risk trades closed. Is this going to be an issue?

Thank you,

Joseph Cox

(12/19/2020 02:50 PM) (Ref No.: 9100293)

Dear JOSEPH L COX,

This message is regarding Options Trading Risks

I apologize for any confusion this may be causing.There are several common misconceptions that you stated with regards to options trading. The main one being regarding Options Expiration.

These 2 options for AMZN and GOOG had a purchase risk of over $2.3 million. This account does not have the buying power to assume this risk.

You are correct that options have a defined risk but only while in the option position. Once settlement takes place, the pairing is no longer applicable. For expiration, all options are counted on their own merit and all pairing is removed. This is called Options Expiration Risk. This is the most common type of risk that customers get themselves into.

Please note that E*TRADE does not want to take action in our customer’s accounts. As these are self directed trading accounts, it is your responsibility to mitigate any and all options expiration risk in the account in a timely manner. If you continue to not mitigate the options risk moving forward, then E*TRADE may remove options trading from the account.

Sincerely,

Jonathan Tharp
9:30 am. – 4 p.m. ET Monday – Friday
1-800-ETRADE-1
Active Trading Representative

E*TRADE Securities, LLC

(12/21/2020 01:20 PM) (Ref No.: 9100293)
Thanks for the response. You all are still not clear about the criteria you are using to remove the risk?

I totally understand the risk with naked trades, I even stated so in the forms I signed. I’ve been doing these types of trades with another broker who specializes in theses trades. I moved money into etrade because of better fees. I’ve been doing these trades for a while with Etrade and had no issue until recently. I am not sure what has changed with you all.

Yes, there is always the risk of assignment with naked options. Maybe you all need to revamp your platform because whatever criteria you all are using is not clear and apparently what you are telling me, I should not be able to do these trades even though the platform is allowing me to.

The whole idea of pairing (buying the offsetting option) is to mitigate the risk. I understand the risk, and I have no no misconception about it.

Thanks for your time, I will go back to the broker I had before who understands these trades and understands the mechanics of assignment. E*TRADE:(12/19/2020 02:50 PM) (Ref No.: 9100293)

(12/21/2020 11:36 PM) (Ref No.: 9100293)

Dear JOSEPH L COX,

Thank you for your message regarding options trading

I apologize for any inconvenience this may be causing.We are always happy to help with our accounts. Please let us know how we can help moving forward.

For a more detailed discussion regarding this matter, please feel free to call into E*TRADE at any time at the number below to speak with an E*TRADE representative.

We want you to know that we appreciate your business. Should you have additional questions, please feel free to respond to this message or contact our Customer Service team at 1-800-387-2331 (International +1 678-624-6210). Our representatives are available 24 hours a day, seven days a week.

Sincerely,

Jonathan Tharp
9:30 am. – 4 p.m. ET Monday – Friday
1-800-ETRADE-1
Active Trading Representative
E*TRADE Securities, LLC

(12/22/2020 02:28 AM) (Ref No.: 9100293)

Thanks, but I’ll pass. Sending me back to the front of the line to wait an hour or more on the phone with a front line worker who was not able to answer my question to begin with is both ludicrous and patronizing. No worries as I got my answer, loud and clear, by the lack of answers and scripted response.

(12/22/2020 10:33 PM) (Ref No.: 9100293)

Dear JOSEPH L COX.,

Thank you for your message regarding options trading

I apologize for any confusion this may be causing.I am not sure as to what you are asking for.

If your concern is how E*TRADE manages the risk on how we mitigate the risk in our accounts, then we are always grateful to receive your feedback. All feedback is able to be submitted on the Website under the Customer Service link on the top right of the website.

For a more detailed discussion regarding this matter, please feel free to call into E*TRADE at any time at the number below to speak with an E*TRADE representative.

We want you to know that we appreciate your business. Should you have additional questions, please feel free to respond to this message or contact our Customer Service team at 1-800-387-2331 (International +1 678-624-6210). Our representatives are available 24 hours a day, seven days a week.

Sincerely,

Jonathan Tharp
9:30 am. – 4 p.m. ET Monday – Friday
1-800-ETRADE-1
Active Trading Representative
E*TRADE Securities, LLC

Okay, I got scolded. So, what I got out of this was that they do not want the risk of me being assigned and shares being called away from their brokerage. I can understand that, but even that is easily mitigated by just closing out the contracts that are assigned. This is standard in the industry and is rare that In The Money options get assigned.

I did not feel like going round and round with E*TRADE about how options are traded and I doubt they even care. It was obvious they do not like how I am trading, I was in denial, and this is the classic firing the client scenario. I just find it interesting that this was not an issue until almost a year later only after I got flagged from another unrelated trade. There are too many other brokers out there to waste time and aggravation with E*TRADE.

I have since moved the account to TD Ameritrade. They actually called me to thank me for the deposit. The person who called is local to me. He has been in the business for 27 years and very knowledgeable. When I told him how I trade and asked if it were going to be an issue, he said that is great and “I hope you make a lot of money”. I was actually taken aback and was speechless for a brief second. I told him I will miss the fee reduction that E*TRADE gave me. He told me we could talk about that later.

The TD rep also told me I could call him directly in case I have questions about their ThinkorSwim platform or anything else. I told him that I was rusty on the ToS platform. He scheduled to have a one hour free consultation with another individual that had been using the platform over 13 years who would walk me through it. He also put a note in that I was selling options to the person who will walk me through the platform. I’m sold.

Damn, and why was I sticking with E*TRADE again? Oh yeah, they lowered my fees and I knew the OptionHouse software. Just proves, you get what you pay for.

E*TRADE customer service is currently a joke compared to what they were and compared to TD Ameritrade. It is night and day. Further digging shows that Morgan Stanley caters to large institutional investors and wealthy investors who have direct lines to their own assigned reps when problems arise. I know this is true since one of my friends also got his own private line into his rep. I just read that E*TRADE has had a windfall of new investors due to the “Rona”. This is going to be a clusterfuck for those who are just learning to trade and to those who work in E*TRADE call center. Good luck to both the ETRADE staff and noob customers when they have issues. They will just tread in their own shit.

My account is not millions or billions, so I do not fit that demographic of those who get their own hotline and rep. I also do not trade vanilla and only certain brokers will accept how I trade. OptionsHouse was one, the old E*TRADE was one, Interactive Brokers does, TastyWorks caters to trader like me, TD Ameritrade does, and the Morgan Stanley version of E*TRADE does not cater to traders like me. If they work for you, great. They don’t for me and just relaying my experience and this is my blog.

I still have my IRA in E*TRADE. I trade covered calls and puts with that account. Not much risk involved there. If Ameritrade lowers my fees in the future I will also move that account out of E*TRADE.