Fine Tune your Options Trading with Weekly Expirations

The introduction of widely available weekly expiration option contracts provides investors with flexibility to the timing of option contracts. Weekly options are designed to give traders more flexible exposure to market events such as releases of economic data and earnings announcements. The advent of weekly options has also provided investors with significantly more strike prices to choose from. This has allowed investors to trade strategies with very precise risk and reward metrics and timing based on their risk tolerance and market outlook.

The primary difference between weekly options and monthly options are that the weekly options have expirations every Friday while the monthly options only expire on the third Friday of the month. Weekly options have the same risks associated with the exercise or assignment of shares as monthly options, but due to the higher frequency of expiration dates, will have these risks occur more frequently. 

Weekly options are the same as monthly options in most aspects, but due to their shorter expiration dates weekly options tend to have:

• Smaller premiums: shorter dated options that expire on the first or second Friday of the month will have less premium than the monthly options expiring on the third Friday. This provides a lower cost for option buyers and a lower credit received for option sellers.

• Accelerated time decay: while an option's value does erode with time, the rate of the decay in the options price happens at a faster rate closer to expiration.

• Higher gamma exposure: gamma refers to the rate of change in respect to an options delta. With less time to expiry, the delta fluctuations of an option become more volatile to changes in the price of the underlying. This means that a small move in the underlying will have a larger impact on the pricing of the option contract. 

In summary, weekly options and monthly options are very similar. They have similar characteristics, but weekly options are prone to more volatility and accelerated time decay. While this provides opportunities to trade more frequently, shorter dated options typically require a more active trade management.

At Firstrade, we provide abundant options educational resources and hold live webinar session every week. If you get cold feet on options trading and not sure where to start, then watch our options tutorial videos, join our options events and utilize our friendly options trading platform to give your online options trading journey a good head-start. Our offering of $0 commission and $0 contract fee for any options orders will also help you waive the worries about fees. Trade options with Firstrade starting today!

Get instantly approved for an additional account on the Firstrade App

Firstrade offers a variety of accounts for every type of investor. If you have brokerage account with us and would like to add another type of account (like a retirement account) into your investment portfolio, you can now do so easily right on the Firstrade app.

Just follow these simple steps to get instantly approved for an additional Firstrade account:

1. On the Firstrade app, go to Account > Open a new account

2. Select an Account Type (Individual Brokerage Account, Traditional IRA, Roth IRA or Rollover IRA)

3. Your information will be pre-filled for your convenience.

4. Submit your application

5. Your new account should be approved within minutes!

Download or update your Firstrade App here.

As always, we’re working to make your experience with Firstrade better. If you have any feedback, please let us know, we’d love to hear from you!

What The SECURE Act Means for Your IRA?

Tax law changes are nothing new, but in 2019, when the SECURE Act became law, it significantly changed some standard practices for retirement accounts, parents and business owners. With adjustments that impact both contributions and distributions to IRAs, the Act will likely be a game-changer for many retirement savers. Let’s look at a quick breakdown: 

1. Change in age for IRA required minimum distributions (RMDs)

If you have a Traditional IRA, you must take taxable distributions at some point in your retirement. That age was 70.5, but with the passing of the SECURE Act, it’s now 72. This is generally good news because it means that you can hold, trade and invest savings longer, accumulate more tax-deferred growth, and possibly hit an even lower tax bracket when you start taking distributions. 

2. Removal of the age limit for IRA contributions 

In the past, Traditional IRA owners could no longer contribute to their account by age 70.5. Now, there is no age limit for making contributions as long as the IRA holder is still employed. This gives investors much more time to save for retirement and enjoy a tax break for doing so.

3. Nonspouse IRA beneficiaries must take funds within ten years

Before the act was passed, nonspouse IRA beneficiaries could stretch out their distributions, potentially leaving unused funds to their children. Now they will need to withdraw inherited IRA funds within ten years of the original owner’s death.  One way to offset the cost of taxes on these distributions may be to open an IRA of your own. 

4. Certain parental withdrawals are permissible

New parents might be able to take a penalty-free withdrawal of up to $5,000 (per parent) from a retirement account within 12 months after giving birth or adopting a child to cover child-related expenses. Parents might also qualify to take as much as $10,000 from a 529 for student loan repayment. While these withdrawals would not be subject to penalties, they may  still be taxable. 

5. Part-time employees can participate in 401(k)s

Part-time employees who have consecutively worked from 500 to 999 hours for a single employer over more than three years may now be permitted to participate in the employer's 401(k) plan. Employers may require additional hours worked before qualifying for matching employer contributions.

Business owners have also seen a few changes thanks to the act, including:

• Tax credits for small businesses (100 or fewer employees) starting a 401(k): Get up to $5,000 in tax credits when your 401(k) includes non-highly compensated employees and automatic enrollment.

It’s a lot to absorb, so here’s a list of key takeaways to help break it down:

• Do you have an IRA? Now you can contribute as long as you remain working. Also, you don’t need to take required minimum distributions until you’re 72. 

• Have you inherited an IRA? If you are a nonspouse beneficiary, you’ll need to take the funds out of the IRA within ten years after the death of the original owner.

• Are you a parent? You might be able to take an early, penalty-free withdrawal of up to $5,000 to pay for expenses within a year of the birth or adoption. Parents of older children haven’t been left out, as they may take a penalty-free withdrawal of up to $10,000 to repay student loans.

• Do you work part-time? You may now be able to take part in your employer’s 401(k) if you’ve worked at least 500-999 hours over three consecutive years.

• Are you a small business owner? You could qualify for tax credits when you set up automatic enrollment in a 401(k) covering non-highly paid workers. 

Top 25 Most Traded Stocks by Investors at Firstrade in March

Here’s the full list of top favored stocks among Firstrade investors:

1. Tesla Inc. (TSLA)

2. Taiwan Semiconductor Mfg. Co. Ltd. (TSM)  

3. Apple Inc. (AAPL)

4. Palantir Technologies Inc. (PLTR)

5. NIO Inc. (NIO)

6. GameStop Corp. (GME)

7. Square Inc. (SQ)     

8. AMC Entertainment Holdings Inc. (AMC)

9. Carnival Corp. (CCL)

10. Advanced Micro Devices (AMD)  

11. Teladoc Health Inc. (TDOC)

12. NVIDIA Corp. (NVDA) 

13. American Airlines Group Inc. (AAL)

14. Boeing Co. (BA)

15. Unity Software Inc. (U)

16. Baidu Inc. (BIDU)

17. Sundial Growers Inc. (SNDL)

18. Opendoor Technologies Inc. (OPEN)

19. Riot Blockchain Inc. (RIOT)

20. Quantumscape Corp. (QS)

21. Marathon Patent Group Inc. (MARA)

22. Senseonics Holdings Inc. (SENS)

23. Canaan Inc. (CAN)

24. Futu Holdings Ltd. (FUTU)

25. Skillz Inc. (SKLZ)

What First-Time Investors Should Know About 1099 Tax Reporting Forms

Many first-time investors can find tax-filing overwhelming, but it doesn’t have to be. To start getting a handle on this important duty, you’ll need to begin by learning about the 1099.

The 1099 is a reporting form sent out by brokerage firms and others to report non-salary income to the IRS. There are many types of 1099s, but Firstrade account holders are most likely to receive one or more of the following:

• 1099-DIV reporting brokerage account dividends and distributions, including your distributed share of mutual fund capital gains

• 1099-B reporting gains and losses from sales of investments (including derivatives)

• 1099-INT reporting interest paid on sweep accounts, money markets, bonds and more

• 1099-MISC to report prizes, such as the Firstrade raffle prizes and gifts

• 1099-R reports distributions from retirement accounts

Determining when to pay taxes for your brokerage(non-retirement) account

Most investors realize that if they sell an asset and take the money out of their portfolio, they may pay taxes on that transaction. But many don’t understand that they may also need to pay taxes when they sell assets in a portfolio, even if the proceeds haven’t been distributed.

The amount of taxes paid varies depending on the type of the investment income. For example:

• Interest and dividends received within the account will likely be considered income. The tax rate of dividends is determined by the type of dividend (qualified or non-qualified) and your income tax rate. However, interest income is usually taxable at your ordinary income tax rate.

• Account gains realized through the sale of investments will likely be subject to capital gains taxes. The tax rate will depend on whether the investor held the investment for a long-term (12 months or more) or a short-term (less than 12 months).

  • Long term investment: When you realize a gain after selling an investment you’ve owned for a year or more, then you’re subject to long-term capital gains tax rates, which are:

    • 15 percent for single filers with an income of $80,000 to $441,449

    • Up to 28 percent for married filers earning $496,600 or more

    • Those earning less than the above amounts may not be subject to any long-term capital gains taxes.

  • Short term investment: Assets sold after being held for less than a year are subject to short-term capital gains tax rates, which are equal to income tax rates. 

• In the case of investment losses, you may be able to write-off up to $3,000 of losses against your other investment gains. Before doing so, review your transactions and make sure you haven’t run afoul of wash sale rules by repurchasing the same or similar holdings within 30-days before or after the date of the loss. Remember, you are still responsible to report any capital losses to your local tax authorities. For more information about tax-reporting, visit our Tax center.

How to Report 1099 Income

In most cases, brokerage firms send 1099 forms by February 15th of each year. If you are a Firstrade client, you should have received them in the mail or via email already. If you don’t remember receiving one and think you should have, don’t worry. Login to your account and download the form at: Account > E-Documents > Tax .

When it’s time to file your taxes in May, your reporting responsibilities for the 1099s vary depending on your status. If you’re using your exclusive Firstrade discount to get TurboTax software, the program will ask  if you’ve received a 1099 and then provide instructions for importing the document. Login now to access more information about filing your taxes.