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STREETSMART PRO® TRADING

1. Trading Premium Received Received Long Bullish or Net Unlimited bearish with Premium rising volatility Paid Siragdigs Neutral and Unlimited Net Gain falling Premium volatility Received Bearish Stock Shigh Variable Protective Price Stock in Siow Price Collars Net Net Premium Premium Debit Moderate Net Unlimited Gain Spreads Bullish Premium Paid Calendar 7 oa Spreads Credit Moderate Unlimited Net Spreads Bearish Premium Received Strangles Neutral to Bullish Neutral to Bearish Bullish Bearish and rising volatility Neutral and falling volatility Purchase Price of Stock Premium Received Unlimited Net Premium Paid Unlimited The strategic and financial characteristics of Rollouts can vary greatly depending on the specifics of the order Strike Purchase Price Premium Gain Short Gain Sale Price Premium Strike Loss Unlimited Net Premium Received The strategic and financial characteristics of Combination orders can vary greatly depending on the specifics of the order Suigh High Strike Price in two option strategy Stow Low Strike Price in two option strategy Collar Max Gain Loss assumes the collar is put on in conjunction with a long stock position Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 113 StreetSmart Pro User Manual
2. This column describes the effect of time decay on the respective strategy holder s position The discussion of Calendar Spreads that follows is for the debit spread only Max Gain for Debit Spread is unlimited only after the expiration of the short option Max Loss for Credit Spread is unlimited when the long calls expire prior to the short calls in which case the position would not qualify as a spread The gain or loss with time for calendar spreads applies only during the period when both options in the spread have not yet expired or been assigned Once the near term option has expired or been assigned the situation will reverse Gain will change to Loss and vice versa Although not common calendar spreads may be neutral Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab
3. Trading session open from 4 15 p m to 8 00 p m ET NOTES e Extended hours orders are limit orders good only for the current or next session e If you select either Pre Market or After Hours in the routing field the Spec Cond checkbox will still be available to you but you can only change the quantity and price of your order e ECN trades on Listed stocks will still populate the time and sales window in the After Hours and Pre Market sessions e Selling of fractional shares is allowed during extended hours sessions e For more information go to the Extended Hours Trading section SELL ALL CHECKBOX The Sell All Checkbox is located in three places Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 85 StreetSmart Pro User Manual e the Trading window e the Execute SmartEx Order window accessed when you check Spec Cond and e when selling from the Positions tab of your Account Details gt Trading 1 00000000 Amazon com Inc Ms OOS Ele Settings Stocks Options Adv Opt Ste change 41 13 290 Volume 4250 200 Last 4008 Open 3935 Hil 4039 Reto 5x50 BIT 100 4 cosel 3835 Lo 3912 Spreas D01 L an H SmartEx viv Spec Cond Set Buy Link _ DAY Shot Save ooe 40 09 40 Order Type lint i Time in Force pay Quay ff Special Conditions LintPice on 4 o Seppie 4 Mingy po Venly Order Save Order Cancel _SeveOrde Corcel _ Stock symb
4. e Direction Quote Change Arrow Activates small up down arrows in the Level II area of the Trading window indicating the direction a market participant just moved in relation to the inside price EXAMPLE If Market Maker ABCD is on the bid at 65 20 but backs off to 65 17 a down arrow will appear at the new price level If ABCD moves back up to 65 20 an up arrow will appear To add this to your display go to Settings General gt L2 Data tab and click Show Directional Quote Change Arrow e Show Status of Bid Ask You can view the Status of the bids and offers Check Show Status of Bid Ask in the Trading window Settings gt General window to display O open displays a current valid quote for the participant L open for trading but the quote has not been refreshed K closed for trading D Time amp Sales Shows every trade being reported through NASDAQ and NYSE plus the INET book trades denoted by inet as well as the share size and time the trade was reported Time amp Sales is color coded These colors may be changed by going to Settings gt Colors in the Trading window menu The default colors are e Green Trades at the inside Ask e Red Trades at the inside Bid e Trades in between the inside Bid Ask e Yellow Trades above the inside Ask e Purple Trades below the inside Bid e RSCG Inside quote change Not a transaction Set the number of trades back to view through the Se
5. 2 To add a column click on a column name in the Available Columns list and click Add to add it to the Selected Columns which are the columns that will display 3 To remove a column click on a name in the Selected Columns list and click Remove 4 To sort the Selected Columns list click on a name and use the Move Up Move Down buttons to change its location in the list TIP If you only want to rearrange the columns but not add new ones you can right click on the column header and select a different column for that position or you can use drag and drop Available Columns eee Option strike price price at which the option may be exercised Symbol Option symbol Price at which the option last traded Time of Last Time at which this option last traded Net change from yesterday s close price Current inside ask price Cumulative volume for the day Open Interest Total number of outstanding option contracts in a particular series Implied The estimated volatility of a stock underlying an option Volatility based on the option price Indicates how much the price of a call option moves for every one point move in the price of the underlying security 104 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Current inside bid price The available number of contracts for the bid and ask displayed as bid quantity x ask quantity Trading Gamma Measures the change in delta for a chang
6. Please note A special maintenance requirement Stock prices below 3 00 of 100 is required for this purchase because require 100 maintenance the price per share of your symbol is below 3 00 Please note You are placing a cash secured put Entering into an equity put Your available cash will be reduced by the position in a Level 1 IRA or assignment value of the put Cash account creates a CSEP position IMPORTANT If you turn off Warnings Trading window Settings gt General gt Orders your orders are automatically submitted without displaying Warning amp Informational Messages related to your orders By unchecking this feature you accept the associated risks of trading without Order Verification as described in the software Agreement and Disclosures CHANGING OR CANCELING ORDERS Changing Orders To change a SmartEx order go to the Account Detail window Order Status tab and either right click on the open order then select Change or click once on the order to highlight it then click Orders gt Change A pop up box will appear prompting you to modify your order Note that you cannot change the order type of a SmartEx order to or from a trailing stop order after the order has been submitted You must first cancel the order and then resubmit with a different order type Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 71 StreetSmart Pro User Manual Direct Access orders can neve
7. iE A z l lt 16 18 20 22 24 26 28 30 32 34 STOCK PRICE in dollars As can be seen from the following chart and table the investor who buys the spread rather than simply investing in the call reduces his maximum loss by 1 6th breaks even at 25 instead of 26 and only loses out to the call buyer if the stock price rises above 31 at which point he would have a 100 return on his investment Spread vs Long Call Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 127 StreetSmart Pro User Manual Vertical Bull Spread vs Long Call Gain Loss at Expiration long call spread 2 4 6 8 GAIN LOSS in dollars 16 18 20 22 24 26 28 30 32 STOCK PRICE in dollars Spread Long Call Long Call Short Call Gablines ot Spread A K Total GainLoss Gain Loss Expiration Gain Loss Geni pics s s 2 o0 s uojs 100 SS 100 00 s f 4 TOOTS 100jf 100 10000 S a 24 BOOTS sojs 5 00 500 00 500 00 Point Bear Vertical Call Spread In a Bear Call Spread an investor performs the exact opposite transactions as those used in the Bull Call Spread Because the investor maintains a negative outlook on the underlying security he sells in the money calls and buys out of the money calls at a higher strike price but sharing the same expiration This strategy is often termed a credit spread because of the net in
8. arrows increase or decrease go to Settings gt General then change the Price Increment Click or tab to the price window and use the Up Down arrow keys on your keyboard to increase or decrease the price by 05 Left Right arrow keys on your keyboard to increase or decrease the price by 01 Shift Up Down arrow keys on your keyboard to increase or decrease the price by 005 You may also click on a price in Level II to load it into the price field Double click an ECN to route directly to that ECN at their posted price SmartEx e Enter the limit price you want e Routes 24 7 to Schwab for submission in current next Standard session Pre Market e Can be sent to Schwab from 8 05 p m to 9 15 a m EST for trading session beginning at 7 30 a m ET Cannot be sent to Schwab from 9 15 a m to 8 05 p m EST and menu selection will be grayed out After Hours e Can be sent from 4 05 p m to 8 00 p m ET for trading 60 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading session beginning at 4 15 p m ET e Cannot be sent from 8 00 p m to 4 05 p m ET and menu selection will be grayed out Direct Access Double click on the participant in Level II that you wish to send your order to and it will fill in this field with either the ECN or if a Market Maker SuperMontage Or click the arrow to see a drop down list of all routing choices available to you If you have a stock lo
9. e Order goes directly to the ONTD order book to search for a match If a better price is available it will target that price 98 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading e If your price is not available in the book it will post on Level II as ONTD The best bid and ask posting 100 or more shares will post on Level II if it does not cross or lock the market e Odd lots are NOT allowed e Day order available if Auto Cancel time is set to 0 e Default cancellation time 180 seconds e Trading Hours 8 00 a m to 5 00 p m ET ONTD Order Routing Order Types Description Only limit orders are available through ONTD The order will not fill at a less favorable price than the limit you set Times In Force Description Day Can be entered after 8 00 AM ET and expire at the end of the extended trading day 5 00 p m ET The information provided on this page is subject to change at any time NASDAQ SUPERMONTAGE SuperMontage is NASDAQ s display and order execution system designed to help reduce market fragmentation provide best execution expand the number of choices to Market Participants and better handle the growth of the market General Information e SuperMontage system will attempt to match your order with the best price available at the time it is received e Non marketable SuperMontage order may be posted to the Level 2 as SIZE e Odd lots are accepted but will be g
10. option e Ideally the cost basis of the long call is eventually reduced to zero and the investor begins to get paid to hold his long position Objectives e Generate income from the short positions e Benefit from the greater rate of time decay of short term options vs longer term options e Potentially realize any gains from a movement in the underlying security after the near term option expires EXAMPLE Calendar Spread An investor feels that stock XYZ which is trading at 60 will trade at this price for at least the next 3 weeks and then might rally The investor could sell the June 65 Calls trading at 2 10 and buy the July 65 Calls trading at 4 10 The net debit to the account would be 2 or 200 If XYZ is below 65 at June expiration the short expires worthless leaving the investor with a simple long position in the July 65 Calls that he can maintain simply sell or spread off with other July options The short term breakeven price cannot be calculated exactly The long term breakeven price after the June expiration is calculated by adding the net debit of the spread to the strike price of the long option Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long
11. 15 p m ET e Separate trading sessions do not apply to Direct Access orders e Schwab reserves the right to change its extended hours session and may cancel extended hours sessions without prior notice e No matter when you submit a Direct Access Order you can only request a cancel you can never change your order Eligible Securities Most NASDAQ and listed securities are currently eligible for extended hours trading at Schwab However at any time any number of securities may not be available due to lack of trading interest during the Extended Hours Trading Session Order Types Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 137 StreetSmart Pro User Manual Only limit orders and short sell limit orders not market orders are accepted during extended hours The maximum order size is 5 000 shares Quotes Quotes for the Extended Hours Trading session reflect the best Bid buy and Ask sell orders currently available through the participating ECNs NOTE Because Schwab Pre Market and After Hours orders are executed on Archipelago you should consider the ARCA quote as the most accurate indicator of bid ask prices available to you To View the NYSE Arca Order Book 1 Go to the Trading window 2 Click Settings gt General gt L2 Data tab 3 When the configuration box opens check ARCA Book Changing and Canceling Orders You can attempt to change or cancel an Extended Hours orde
12. 30 17 65 Volume 2 297 Level I Data for Last 200 Open 180 Hil 215 01 2762 f underlying Symbol 4 close 1 70 Lol 1 63 Spread 0 05 Nov 05 2 05 es 47 50 L Limit DAY Sell to Close Buy to Order Entry Call Cancel Sell to Open Buy to Close ZON KW ISE CBOE AMEX PEX PHLX BOX Yolume Level II and Time amp Sales Yolume by Exchange The Advanced Options Tab The Advanced Options tab allows approved traders to place multi leg option orders including buy writes rollouts collars straddles vertical spreads and calendar spreads The available tabs depend on your individual level of options approval Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 55 StreetSmart Pro User Manual Trading 1 00000000 S amp P100 INDEX OPT DEX 100 0K File Settings Stocks Options Adv Opt 0Ex 550 10 Write Unwind Rollout Collar Straddle Vertical Sprd Calendar Sprd Combo 7 Day Close XETKH 11110A lt 4 Cancel cal Al Money z 7410 4 r aon Submit Order Bate Open XET LH 10 008 Close Near 7 Open Dec 05 7 Strike Range 0 00 7 5 mbol Call Call Bu Near Sell Far Exch Net MET KT XET LT Buy 400 00 C Sell 400 00 C Buy 400 00 C7 Sell 400 00 C XET KD XET LD Buy 420 00 C Sell 420 00 C Buy 420 00 C Sell 420 00 C XET KH XET LH Buy 440 00 C Sell 440 00 C Buy 440 00 C7 Sell 440 00 C XET KL 7 XET LL Buy 460 00 C7 Sell 460 00
13. Buy wri CBOE Net Size Sell 7 50 C 7 54Dr 4E Sell 10 00 C 10 04Dr F Sell 12 50 C 12 54Dr 5 Sell 15 00 C 15 04Dr 5 Sell 17 50 C 17 54Dr_ 6 Sell ann F NNMAN F 10 Click on the combination you want to trade In the image above you can see the selected strategy highlighted in blue Combination For each leg click on the desired contract then right click and select which leg you want to apply that contract to i e Load ZQN ED to Leg2 or manually select the Expiration month and Strike price Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 135 StreetSmart Pro User Manual 11 Finally ensure that the Price is correct It will default to the Net value of the quote you selected but you may enter a different price or use the arrows to select a new price Note that all Advanced Options orders are sent as Limit orders 12 To send the order Write Unwind Click Submit to Open or Submit to Close and Collar Vertical then verify that the order is correct Spread Calendar Spread Click Submit Order and then verify that the order is correct Straddle If you are placing a sell order click Sell to Close or Sell to Open If you are placing a buy order click Buy to Open or Buy to Close and then verify that the order is correct Combination Select the Leg Action for each individual leg only two legs per order To send the order click Submit Order and then verify that the o
14. C Commissions taxes and transaction costs are not included in any of the following strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies All strategies described herein require the use of a margin account Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC PLACING STOCK TRADES Place stock trades and get Level I and II data in the Stocks tab of the Trading Window Enter a symbol select the variables for the order such as Quantity Limit Stop prices and more Then click the button for the action you wish to take Buy Sell etc to send the order You may route an order from the Trading Window using the following steps For more detailed information about each feature of the Order Entry panel go to the Stock Tab Features topic 56 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Quantity j 100 H if p a SmartE x wil Spec Cond Sel
15. Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 105 StreetSmart Pro User Manual in your account Buy to Open Click to buy new long option positions for your account Sell to Open Click to create new short option position in your account Buy to Close Click to buy back any short option positions that are currently in your account 5 The Options Execution window will open as in the following Execute SmartEx Order 00000000 MSFT Buy to Open Nov 05 27 50 Call Order Type v Time in Force DAY Quantity f H Special Conditions Limit Price 0 1 Stop Price Save Order Cancel image 6 Select the appropriate options described below and click OK to send the order Options Execution Settings Quantity Click on the up and down arrows to change the number of contracts Limit Price The bid ask price of the selected option is automatically entered here though it may be adjusted in 05 increments by clicking on the arrow buttons next to the field Min Qty You may specify a minimum quantity for the order to fill if your order quantity is 2 or greater AON All or None All contracts must be filled or the order will be canceled Order Type Limit Limit order will accept improvement over limit price Limit Orders Stop A market order that is only activated when there is a print or quote that is at or through the stop price On sell stop orde
16. Description Day Can be entered after 7 30 AM ET and expire at the end of the extended trading day 5 30 p m ET Portions of the order not filled immediately upon reaching the market are canceled The information provided on this page is subject to change at any time To get the most current information please go to the BTRD web site INET ECN General Information e NASDAQ Single Book NASDAQ has integrated SuperMontage INET and BRUT branded market data facilities into a Single Book While the integration does not impact the existing order routing venues and order types the migration results in Level II data display changes within StreetSmart Pro The software consolidates SIZE BRUT and INET quotes into one INET quote at each tier 96 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Visit the NASDAQTrader com for more information on the NASDAQ Systems Integration e INET does NOT accept Good Till Canceled orders and any open orders will be canceled when trading hours end at 8 00 p m ET e Day order available if Auto Cancel time is set to 0 e Default cancellation time 180 seconds e Trading Hours 7 00 a m to 8 00 p m ET INET Order Routing Order Types Description Limit Matched against existing orders on the NASDAQ Single Book Limit Invisible These orders are never displayed on the book or in Level II and therefore cannot lock or cross the market
17. MENU SETTINGS e Option Data Displays the option multiplier exchanges on which the contract is trading and other advanced data Gption Data DLQKF DELL Nov 05 30 00 Cal Basic Option Data Last Sale 06s Tick Up T Size of Last Sale 3 Exchange CBOE xISE Net Change 0 10 Size 217 x 3166 Open 0 55 High 065 Previous Close 0 5 Low 055 Best Bid 0 6 Volume a2 Best Ask 0 65 Open Interest 19452 Advanced Option Data Mubpher 100 Amencan Contract See DELL 100 G Equiy Cash in Liew 0 00 ABCIXP Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 107 StreetSmart Pro User Manual and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients e Hypothetical Pricing Allows you to manually adjust variables involved in option pricing to see how changes affect the option values EXAMPLE 1 You are bullish on a stock but decide to purchase calls instead of the stock so you can get more leverage You anticipate the stock will go up about 2 points in the next week You use the hypothetical model to add 2 points to the underlying price and take away 7 days from the days to expiration This gives you an indication that the call option you are considering might gain
18. amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Straight Calls Straight Calls refers to the purchasing or selling of call options to open a position This strategy is also commonly referred to as Long or Short Calls Generally these two strategies are speculative in nature Long Call A strategy consisting of the purchase of a Call option This strategy is generally used to speculate on the upward move of the underlying security or index For use when investor anticipates e Upward market direction security appreciation Financial Characteristics e Maximum Loss Debit amount paid for the option e Maximum Profit Unlimited e Break Even Strike price of the option plus the debit amount paid for the option Objective e Speculative gain The maximum loss on a straight Call is limited as long as and only as long as the investor does not exercise the long call There is an additional risk associated with the expiration weekend If the long call is exercised the investor ends up with a long position in the stock Bad news during the weekend could force even greater losses on the investor before he can exit the long equity position 114 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading EXAMPLE Long Straight Call Currently XYZ trades at 25 share The investor employs the strategy of buying one in the money call strike 20 for 6 00
19. at any time BRUT ECN 94 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading General Information e NASDAQ Single Book NASDAQ has integrated SuperMontage INET and BRUT branded market data facilities into a Single Book While the integration does not impact the existing order routing venues and order types the migration results in Level II data display changes within StreetSmart Pro The software consolidates SIZE BRUT and INET quotes into one INET quote at each tier Visit the NASDAQTrader com for more information on the NASDAQ Systems Integration e Day orders are available if Auto Cancel time is set to 0 e Default cancellation time 0 seconds e Trading Hours 7 00 a m to 8 00 p m ET BRUT Order Routing Order Types Description Limit These orders are not displayed in the BRUT book The order executes through the inside price whether in the market or in the BRUT Book up until the limit is reached at which point the order will time out Non Marketable Limit Orders Will try to match with any other order on the BRUT book If no match is found will post to the BRUT order book Day orders can remain on the book until the end of the day Limit Invisible Invisible orders are never displayed in the book or in Level II and therefore never cross or lock the market Market Market orders are available during the standard session only If the full quantity cannot be matched in the
20. been filled or your limit order price if any has been reached In addition your order may receive enhanced liquidity in excess of the current liquidity displayed in the market SmartEx order routing is available during the standard session only It is not available during the extended hours sessions With SmartEx there is only one commission charge and one order number unless you change or cancel the order regardless of the number of executions it takes to fill your order PLACING A SMARTEX ORDER IN THE STANDARD MARKET SESSION 1 Enter the symbol in the symbol field and press Enter on the keyboard 2 The symbol field background should be white If it s blue the window has not been updated with the quote information for the new symbol To make the symbol field background white press Enter on your keyboard 3 If necessary change the quantity using the arrow buttons or the following keyboard keys e Up Down keys to increase or decrease in increments of 500 e Left Right keys to increase or decrease in increments of 100 e Shift Up Down keys to increase or decrease by 10 e Or click in the quantity field and type the number of shares or contracts e TIPS e You can also click the button and enter a dollar value to see how many shares you could trade for that amount e To set the default quantity to a different amount go to Settings gt General gt Orders gt Quantity in the Trading window menu 4 Choose whether t
21. book the remaining shares will be routed via the BRUT Liquidity Finder Orders are sent out at NBBO only Execution will only stop if order executes in full or user cancels Times In Force Description Day Can be entered after 7 00 AM ET and expire at the end of the extended trading day 8 00 p m ET IOC Portions of the order not filled immediately upon reaching the market are canceled The information provided on this page is subject to change at any time To get the most current information please go to the BRUT web site Direct Access Route Comparison Placing a Direct Access Order Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 95 StreetSmart Pro User Manual Auto Cancel Settings BTRD ECN General Information e Order goes directly to the BTRD order book If a better price is available in the book it will target that price e If there is not match order will post on Level II must not cross or lock the market e Sending a market order to BTRD in a fast market can result in a slower fill at a worse price than a limit order e BTRD accepts odd lot orders e BTRD does not accept order prices with fractions smaller than 01 e Day order available if Auto Cancel time set to 0 e Default cancellation time 180 seconds e Trading hours 7 30 a m to 5 30 p m ET BTRD Order Routing Description Limit orders are supported for NASDAQ and listed securities Times In Force
22. equity Because one leg trades on an option exchange and the equity leg on a separate equity exchange the circumstances in which the Net price indication will be better than the prices for the separate legs combined will be uncommon Please note the indicative prices are not firm quotes and may not be available when an order is sent for execution 118 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Buy Write In a Buy Write the individual purchases a stock and simultaneously writes calls against it If the call expires out of the money the investor will have collected the premium of the option he is effectively generating income against his long position Additionally the investor will participate in any rise in the security up to the strike price of the option If the option expires in the money it will be exercised and the investor will have to sell his shares at the given strike price On the downside the underlying security has to fall further than the collected premium before money is lost so the written call also gives a limited amount of downside protection This strategy is different from covered call writing only in that the investor does not own the security prior to selling the option contracts For use when investor anticipates e Flat to Slowly rising market Financial Characteristics e Maximum Loss Stock price premium for written call In addition investor has opp
23. falls more than 4 00 share 124 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Long Straddle Gain Loss at Expiration 4 2 0 2 4 a 18 20 22 _ W B G 5 Ww n l lt rc STOCK PRICE in dollars Short Straddle Investors using the short straddle strategy anticipate that the underlying market security of the options will trade in a narrow range and that large movements in either direction are unlikely A short straddle will typically therefore involve the sale of at the money puts and calls with the same expiration date and strike price The investor receives the premiums for the calls and puts and hopes that at expiration neither the call nor the put will be more in the money than the total premium received The strategy exposes the investor to unlimited losses with the possibility of only limited profits The investor might also sell a straddle at a strike that he she expects the underlying security to move to by expiration For use when investor anticipates e Flat Neutral market for the security e Decreased volatility Financial Characteristics e Maximum Loss Unlimited e Maximum Gain Premiums received in the transaction e Benefits from time decay Objective e Speculative income generation EXAMPLE Short Straddle XYZ trades at 25 00 share An investor believes that the stock will remain flat in the near term He puts on a
24. from following e Open Calculates change from the Open price e Close Calculates change from the current day s close The change will recalcuate when the exchange close price is received e Previous Close Calculates change from the previous day s close received from the exchange ng DISPLAY SETTINGS Display Aggregate Quotes When checked displays an aggregate of the top 20 price levels above your Level II montage Hide Primary if Book is Displayed If checked for any ECN Book data that is displayed see Displayed Bid Ask Quotes below the primary quote for that ECN will NOT display in Level II This eliminates the display of duplicate quotes during the standard session Remove Stale Quotes Filters out stuck quotes during market hours Show Directional Quote Change Arrow If enabled in your Trading window settings you may see some small up and down arrows in the Level II area of the Trading window What these arrows indicate is the direction that market participant just moved in relation to the inside price For instance if Market Maker GSCO is on the bid at 65 25 but backs off to 65 125 a down arrow will appear at the new price level If GSCO moves back up to 65 25 an up arrow will appear Similarly if GSCO is on the ask at 65 25 and moves up to 65 35 an up arrow will appear If GSCO merely refreshes his quote no arrow will display This option will be grayed out if you are not e
25. options investors may lose 100 of funds invested In the money long puts need to be closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Combos The Combo tab allows you to manually input two legged spreads and other two legged options strategies not specifically supported in any of the other Advanced Options tabs Note that because Schwab currently only accepts two legged orders if you complete a stock leg Leg 1 you will not be able to complete Leg 3 and vice Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 133 StreetSmart Pro User Manual versa Also the StreetSmart Pro Combination order is not the same as the Combo strategy on Schwab com Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strate
26. premium plus stock decline down to the strike price of the put e Cash credit from put premium Objectives e Modest risk mitigation and income generation EXAMPLE Sell Write Currently XYZ trades at 25 share An investor would like to participate in some of the downside movement in the stock and generate additional income at the same time Using the Sell Write strategy the investor sells the stock 100 shares and sells one out of the money put 20 strike price for 3 00 per contract for a total cash credit of 300 00 If the stock declines below 20 00 share the total gain is capped at 800 00 The stock must rise above 28 the breakeven price before the investor loses money so the short put provides limited upside protection Sell Write Gain Loss at Expiration 1 000 800 600 400 200 0 200 400 600 800 1 000 short stock covered put or oO 3 5 i z l lt 17 19 21 23 25 27 29 31 33 STOCK PRICE in dollars Unwinds Unwind is the term used to refer to the order that closes out the positions opened in a buy write or sell write strategy The unwind for the example in sell writes above would be to buy XYZ and to buy to close the 20 short put Unwinds should be viewed more as a closing transaction than as a true option trading strategy Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final ou
27. select User Defined Rate and change the interest rate 108 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading to any you wish Option Greeks Settings Pricing Method Black Scholes Interest Rate Standard Rate IRX 3 month rate v C User Defined Rate p5 H e Stack Options When checked Calls will be stacked above Puts in the Options tab Scroll down to view Puts Otherwise Puts will be listed to the right of the Calls Scroll to the right to view Puts OPTIONS LEVEL II TAB Options Level II tab displays the prices and size that each exchange is posting as well as alerting you to exchanges where the contract may be available for automatic execution Options Level II provides you with a greater depth of information regarding the option contract being viewed You will need to turn on the Level II Options tab by clicking Settings gt General gt L2 Data and checking the Show L2 Option Data selection kag Trading 1 00000000 Amazon com Inc N E File Settings Stocks Options L2 Opt le a n 4 0 AMZN Change 055 6 Volume 3 1 466 Last 2 00 Oez Hi 200 oen OH ws As Spread 0 05 o biw 7 Sell to Close Jes Buy to Open Sell to Open Buy to Close ZON MJ CBOE AMEX PCX Volume 668 298 20 114 2 05 2 850 2007 2 05 DOF gor 2 05 366 2 05 756 2 05 1 497 Stock symbols and price and volume data shown here and in the software are for illus
28. to Default If selected the software will default the quantity field to the specified Default Share Size or Default Contract Size AUTO CANCEL TIMEOUTS Note that changes to these settings are isolated to the computer on which you make them If you access your software from another computer you will need to change your timeout settings there as well SuperMontage This will automatically send a cancel after the number of seconds you put into the text box for SuperMontage orders only The default setting is 0 seconds which means it will remain live until canceled or executed DISPLAY SETTINGS The number of seconds that direct ECN orders are live before the system auto cancels them A value of 0 disables auto cancel The default is 180 seconds To find out which ECNs post orders to their books go to that ECNs section in this manual or visit their website As ECN information changes on a regular basis the most reliable information will be found on their website Compute Ratio from Quantities If checked the ratio display in the Trading window will display number of shares available at the inside Bid vs the inside Ask If unchecked the ratio shows the number of participants at the inside Bid vs the inside Ask 78 Calculate Change Choose whether change is calculated based on one of the Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Tradi
29. use SmartEx For a comparison of each Direct Access route view the Direct Access Route Comparison topic The default Time in Force TIF will always be Day Select a different TIF if available for the order route you have chosen You can check the Spec Cond box to set any additional order qualifiers such as pegging or Max Floor This will require one more window to be reviewed prior to the Order Verification window To sell your entire position check the Sell All box The quantity will default to the shares you have available to sell When checked the quantity will become shaded See the Sell All topic for more information Once the Order Entry fields are set up to reflect the attributes you want choose your action Sell or Buy Use the SmartEx venue if you wish to place a Short order If Order Verification is enabled in the Trading window Settings gt General window you will be asked to verify the details of your order before it is sent Click Place Order to submit the order or Do Not Place Order to cancel your action ARCA ECN General Information The order will try to find a match in the ARCA NYSE Arca Book If a better price is available in the book then it will target that price If no match is made the order will post to the ARCA Book The best bid and ask posting 100 or more shares will post on Level II if it does not cross or lock the market A market order is available by selecting Market in the drop down m
30. your spread ranges expiration months or by amounts in at out and near the money all entered at one net credit or debit price Complex Option strategies can be entered more quickly and with potentially less market risk than by legging in In addition to saving time creating the order having direct access to an exchange if available may improve the quality and speed of the execution by routing both legs of the order immediately and electronically StreetSmart Pro offers the following Complex Option strategies from the Adv Opt tab in the Trading window depending on your options approval level Click on the links for descriptions of each type of complex option order Strategy Sub For use Financial Characteristics Strategy when view Max Loss Max Gain Change in value in time of stock is Long Bullish Net Unlimited Paid Short Bearish Unlimited Net Gain Premium Received Long Bearish Net Strike Loss Premium Net Paid Premium Paid Bullish Strike Net Gain Net Premium Premium Received Received Debit Bullish Net Shion Stow Loss Spreads Premium Net Paid Premium Paid Credit Bearish Shiga Srow Net Gain Spreads Net Premium Premium Received Received Bearish Net Shig Siow Loss Spreads Premium Net Paid Premium Vertical Put Paid Spreads g Credit Bullish Shion Siow Net Gain Spreads Net Premium 112 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Loss
31. 25 loss and may participate in an upside move of up to 17 2 The investor assumes some risk of loss in exchange for retaining some of the upside potential of his XYZ position With a net debit credit of 0 the breakeven price for this strategy remains 64 Collars Gain Loss at Expiration 2 500 2 000 4 500 4 000 500 0 500 1 000 1 500 2 000 stock collar E a p2 G 5 iz w l lt 50 55 60 STOCK PRICE in dollars Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long options investors may lose 100 of funds invested In the money long puts need to be closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a curren
32. 25 68 1 000 25 65 25 66 25 65 gt 25 66 bee 25 66 25 65 25 66 25 65 25 66 25 65 25 66 Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients Company Shows the company name and the market on which the stock Name trades Market A letter after the security name is the Financial Status Indicator FSI FSI Codes D Deficient Failed to meet NASDAQ continued listing requirements E Delinquent Missed regulatory filing deadline Q Bankrupt Issuer has filed for bankruptcy N Normal Default Not currently deficient delinquent or bankrupt Will not be displayed G Deficient and Bankrupt H Deficient and Delinquent J Delinquent and Bankrupt K Deficient Delinquent and Bankrupt 58 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading TIP To view the current quote for an index Level 1 needs to be enabled Enable Level 1 in the Trading Window menu by clicking Settings gt General gt L2 Data tab and then checking Level 1 Level I Data Symbol To enter a new symbol click in the field type the new symbol and press Enter on your keyboard Click on the down arrow to show recently loaded symbols Select a symbol from thi
33. 6 All rights reserved 0106 5667 Trading f Trading 1 AYBT APPLIED MATERIALS INC NASDAQ EBR Stocks Options L2 Opt Adv Opt Shrtbl 50 000 Sym Ch 015 Chg 0 84 Last 17 65 T Open 17 71 Hi 17 86 Ratio 3x512 Vol 10 838 401 Close 17 80 Lo 17 50 Spread 0 01 Oty 1000 H s Venue SuperMontage Buy Limit 17 67 Type Limit z Shor TIF Day M aa Cancel CxiAI Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients Order Routing All StreetSmart Pro users have access to SmartEx order routing which is designed to see the best trade execution for your order in the timeliest manner possible unless otherwise specified Users who want more control over the routing of their orders may wish to enable Direct Access Trading for their accounts Direct Access trading entails certain risks and responsibilities As a result we have established special eligibility requirements for Direct Access trading These eligibility requirements are posted on the StreetSmart Pro Center of Schwab com in the section called Trade Routing With Direct Access in addition to SmartEx order routing you can route orders directly to e Direct Access ECNs including I
34. Any remaining shares that are unfilled will be cancelled This option will be grayed out if you do not have Direct Access capability Default MM Double Click to SuperMontage If checked and you double click on a Market Maker ID in the Level II screen your order entry fields will automatically set up a SuperMontage order Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 77 StreetSmart Pro User Manual If unchecked and you double click on a Market Maker ID the system will automatically set up to send an order at that limit price Pop up Execution Panel Outside Lvl II Will position any order routing pop up windows so that they do not pop up on top of the Level II display Price Increment You can change the increments by which the arrows next to the price field change the price For example if it were set to 0 125 a stock at 20 50 would change to 20 625 when you click the up arrow QUANTITY Save Current Quantity Always Clicking on this option will set the default share size to the share size that is currently in the Share Size field of the Trading window So when you pull up a new stock the share size will remain the same Set Quantity to Open Position If you have an open position in a stock and this box is checked the next time you load that stock into the Trading window the Share Size field will show the number of shares you hold Set Quantity
35. Inc 2006 All rights reserved 0106 5667 Trading Print Quote Will highlight in grey and print quote changes in the Time Changes in Time amp Sales panel amp Sales Show Equity Print If checked the full volume for a print will display If it is Volume in 100 s unchecked the print will display without the last two zeros to save screen space T amp S Trades Back Shows a certain number of trades backward when loading a new stock For instance if you want to see the last 20 prints for the stock each time you load a new one set this to 20 The maximum is 40 trades back To expand this view up to the last 1000 trades right click in the T amp S window and select Request Expanded T amp S DISPLAY EXCHANGE LABELS ON PRINTS If an exchange is checked each time a print comes through Time amp Sales from that exchange the ID for the exchange will display next to the print Prints from unchecked exchanges will display without an exchange tag COMMISSIONS DISPLAY SETTINGS Display If checked the estimated order amount displayed in the Order Estimated Order Verification window will include the estimated commissions Cost Including specified in the fields below Commissions SmartEx Order 00000000 You would like to Buy 100 shares of SWC 11 06 Limit DAY for account 00000000 The estimated order amount including commissions is 1115 95 Do Not Place Order Equities Options Enter the estimated
36. Market Peg Primary Peg Pegs the order price to the ask if buying or to the bid if selling meaning the order price will automatically adjust as the bid or ask moves until the order executes or the stock trades beyond your limit price Orders may be adjusted a penny up or down to avoid locking the market EXAMPLE XYZ is currently quoted at 20 bid x 20 05 ask A Market Peg order to buy XYZ with a limit of 20 10 will be submitted at 20 05 If the quote changes to 20 05 bid x 20 10 ask the order price would change to 20 10 If the order is not executed it will not update beyond the limit price and will remain posted at 20 10 Pegs the order price to the bid if buying or the ask if selling OTC securities or the best exchange bid ask for Listed securities The order price will automatically adjust as the bid or ask moves until the order executes or the stock trades beyond your limit price EXAMPLE XYZ is currently quoting at 20 bid x 20 05 ask A Primary Peg order to buy XYZ with a limit of 20 05 will be submitted at 20 If the quote changes to 20 05 bid x 20 10 ask the order price would change to 20 05 If the order is not executed it will not update beyond the limit price and will remain posted at Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 97 StreetSmart Pro User Manual 20 05 Times In Force Description Day Can be entered after 7 00 AM ET and expire at the end of th
37. NET ARCA ONTD BTRD and BRUT e SuperMontage NASDAQ operated system that routes orders to Market Makers and participating ECNs e Listed stocks such as those on the New York Stock Exchange and the American Stock Exchange are routed to one of several ECNs trading listed securities e Finally Options trades are routed to the Chicago Board Options Exchange or other regional exchanges e Review the topic for each routing type to learn details about each routing method or visit the Direct Access Route Comparison topic for a side by side view of each routing method Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 53 StreetSmart Pro User Manual No one method is best in all situations so it is important that you familiarize yourself with the routes available and determine which best fits the market conditions ABOUT THE TRADING WINDOW The Trading Window is the hub of the software where you can place trades and get Level I and II quotes In the Settings menu of the Trading Window you can set up Hot Keys for rapid fire trading as well as general data display settings and much more You can have up to three Trading Windows open at once allowing you to follow several symbols at one time The Trading Window features four tabs Stocks Options Level II Options and Advanced Options The Stocks Tab The Stocks Tab has 3 segments Trading 1 00000000 Amazon com Inc DR File Setting
38. Remember each contract in a Buy Write represents 100 shares of the underlying stock 4 Select the expiration month or Near for the nearest expiration month Select the expiration month for the option position you wish to Close and the month for the position you wish to Open Setting the Open to Near will automatically select the next nearest month beyond the current month Calendar Select the Near and Far expiration months Spread 5 Select whether you want to view combinations that are At the Money In the Money Out of the Money or to see all at once leave the default All Money 134 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Collar Select whether you want to view combinations that are Straddle Around the Money Above the Money Below the Money or to see all at once leave the default All Money 6 Select whether to display Calls or Puts applies to Rollout Vertical Spread Calendar Spread and Combination orders only 7 Select the Strike Range which will show you potential trades where the difference between the two contract prices is equivalent to the strike range ou specify Applies to Rollout Collar and Calendar Spread orders Vertical Select the Spread Range which will show you potential Spread spread trades where the range between the two contract strike prices is equivalent to the spread range you specify 8 Now decide whether you want a net cred
39. STREETSMART PRO TRADING Train ou sccececeeeeeeeeeeeeeeeeeeaeeeuaeeaeaeeaeaeeaeaeeeeaeeauaeeaeaeeasaseeeaeeauaeeauaseasaesguanseeaesggs 51 Trading OVERVIEW ai mimir tains aiae aai akaa a anaa E aAa sta aieers aiak aAa AN AANS 52 SMArtEX Tradi g rans tarinoina a Ea onus aE OAA EADAE DNAD EEDE NEREA 82 Direct ACCESS Trading arris irine nerian Ananaia Daw aasasdatediaecsed niecsaaae eat eieas tangs TI 90 OPUONS arrera aE EAE E ERA nobel ET cove eatin above RANEE TNE ENO CEOE Edad ee 102 Extended Hours Trading nre iei a eek aie taal ee A TETA AEE E TE 137 Order Status vier ericackwinhiay aA AAA EAE AAEE ARA a A E 141 51 StreetSmart Pro User Manual Trading Overview 52 Trading Window The Trading window is the primary order routing interface in StreetSmart Pro and was designed to put important information at your fingertips to help you act on a security s most relevant up to date data In addition to trading and viewing quotes for stocks and indices approved traders can access quotes and trading capabilities for single and multi leg options Trading 1 00000000 AMAZON COM INC NASDAQ G X File Settings Stocks Options Adv Opt T Change 0 07 018 Volume 2 893 219 Last 38 70 Open 3858 Hil 39 13 Ratio 28x59 1000 H Close 38 77 Lol 38 46 Spread 0 01 L 38 73 Hf SmanEx Spec Cond Sell Buw Limit DAY Sell All Short Save Copyright Charles Schwab amp Co Inc 200
40. a down arrow will appear at the new price level If GSCO moves back up to 65 25 an up arrow will appear Similarly if GSCO is on the ask at 65 25 and moves up to 65 35 an up arrow will appear e You can also view the Status of the bids and offers Check Show Status of Bid Ask in the Trading window Settings gt General window to display O open meaning this is a current valid quote for the participant L open for trading but the quote has not been refreshed K closed for trading Time amp Sales Time amp Shows every trade being reported through NASDAQ and the Sales INET book trades denoted by inet as well as the share size of the trade and the time of the trade Time amp Sales is color coded Green Prints at the inside Ask Red Prints at the inside Bid Prints in between the inside Bid Ask Yellow Prints above the inside Ask Purple Prints below the inside Bid Chal Gib Inside quote change e TIP Set the number of trades back to view through the Settings gt General menu To expand this view up to the last 1000 trades right click in the T amp S window and select Request Expanded T amp S GETTING QUOTES IN THE TRADING WINDOW There are several ways to load a symbol into the Trading window e Enter the symbol of the security in the Symbol box and press Enter Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 63 StreetSmart Pro User Manual e Click on the arrow in t
41. about 1 54 if the stock goes up 2 points over a the next 7 days EXAMPLE 2 You can also see how the greeks change as the variables change For example since a Delta will increase as an option gets farther in the money in the example above you would see the Delta change from its current level of about 68 up to 90 This tells you that while it only earned 77 for every dollar so far additional moves to the upside will yield about 90 for every dollar if it continues to go up Hypothetical Option Pricing Input Output Call Put Strike Price 13 Option Value 0 150009 0 651599 Share Price 1848 Delta 0 288242 0 711403 Expiration days 2 Gamma 0 400677 0 400677 Volatility 25 418397 Theta 0 012520 0 010988 Interest Rate 2 4 Vega 1 143497 1 143497 Dividend Yield 1 08 Rho 0 170193 0 453643 Pricing Method Black Scholes OK Cancel SETTINGS MENU OPTIONS e Option Page Columns You can rearrange Options tab columns by either right clicking on the column and selecting a different column or by adding columns See the Options Tab Columns topic for directions e Option Greeks Settings Greeks indicate how fast an option price is changing relative to parameters such as time underlying stock price volatility etc o Pricing Method Select from Black Scholes Barone Adesi Whaley or Cox Ross Rubinstein o Interest Rate Defaults to the 3 Month Treasury I rate Index rate but you can
42. aded that is on a listed exchange you will see the Listed Order routing options See the individual Order Route topics for information on how each routing venue works Some order routes will have multiple order types such as Limit Market Stop Limit etc After selecting your routing venue choose an Order Type from the drop down list See the Direct Access Route Comparison topic for an overview of what Order Types each route may offer Time In Some routing venues will have one or more Time In Force Force options including Immediate or Cancel IOC Day DAY Fill or Kill FOK etc After selecting your routing venue choose a TIF from the drop down list See the Direct Access Route Comparison topic for an overview of what Order Types each route may offer V Spec Cond If checked when you send an order a Special Conditions window will open allowing you to specify additional conditions for your order such as Minimum Quantity All or None etc See the topic for the Routing Venue you are using for a description of its available Special Conditions INET Execute SWC Buy Time in Force DAY Special Conditions Order Type Limit Min Oty Quantity 1000 Max Floor 0 Limit Price H Peg Diff H Stop Price NOTE If you do not change your order type to Market or use the Spec Cond checkbox StreetSmart Pro will automatically make your order type a Day Limit order Copyright Charles Sc
43. and buys puts at a lower strike that share the same expiration date The high strike puts have higher premiums than the low strike puts As a result the investor will receive a net inflow of capital since the price of the options sold exceeds the price of the options purchased Consequently bull put spreads are often referred to as credit spreads To achieve maximum profit the underlying security price must rise above the strike price of the short written put at expiration rendering both puts worthless For use when investor anticipates e Upward market direction security appreciation Financial Characteristics e Maximum Loss The difference between the strike prices less the amount received to establish the spread e Maximum Profit Net premium received Objective e Speculative gain The maximum loss on a bull put spread is limited as long as and only as long as the integrity of the spread is maintained If the investor trades out of or exercises the low strike put the maximum loss is no longer limited to the premium outlay There is an additional risk associated with the expiration weekend If the short put is assigned while the long is not auto exercised because for example the stock closes between the two strikes the investor ends up with a long position in the stock Bad news during the weekend could force even greater losses on the investor before he can exit the long equity position EXAMPLE Bull Vertical Put Sp
44. and then drops 5 the order will be sent at that time The change from the time that the trailing stop was placed would effectively be 4 above where you placed the order e Trailing Stop can have a Time in Force TIF of Day or GTC Good til Canceled e When placing a Trailing Stop order please note that you cannot change the order to another order type using the Change feature nor can you change 84 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading another order type to a Trailing Stop order In both cases you would have to cancel the order and resubmit with a different order type For some NASDAQ equity orders you may not be able to change the order When this occurs you will notice that your order cannot be changed because in most cases it will fill immediately You can always request to cancel a limit order that has not completely filled Market orders can not be cancelled during Standard Market Session And you can designate which session you want your order placed in Trade Types PWETIE 9 Not Available Standard Session Routes 24 7 to Always available SmartEx Schwab for submission in current next Standard session Trades are executed from 9 30 a m to 4 00 p m ET Pre Market Only from 8 05 p m 9 15 a m to 8 05 p m to 9 15 a m ET ET Trading session open from 7 30 a m to 9 15 a m ET Only from 4 05 p m 8 00 p m to 4 05 p m to 8 00 p m ET ET
45. anticipates e Rising market Security appreciation Financial Characteristics e Maximum Loss Net premium outlay 126 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading e Maximum Gain The difference of the strike prices less the cost of establishing the spread Objective e Speculative gain The maximum loss on a spread position remains limited to premium outlay as long as and only as long as the integrity of the spread is maintained If the investor trades out of or exercises the low strike call the maximum loss is no longer limited to the premium outlay EXAMPLE Bull Vertical Call Spread Currently XYZ trades at 25 share The investor believes the stock will appreciate and wants to participate in the upward movement but does not want to simply buy calls because of the expense risk involved Instead the investor employs the spread strategy buying an in the money call strike 20 for 6 00 share and selling an out of the money call strike 30 for 1 00 share Using this strategy the maximum loss is the difference between the premiums paid and the premiums received 5 or 500 The maximum profit an investor can receive is the difference of the strike prices less the cost of the position The breakeven price of 25 is calculated by adding the net debit of the spread to the strike price of the long option Vertical Debit Spread Gain Loss at Expiration m tg pe pa K gl
46. ater losses on the investor before he can exit the short equity position A margin account is required EXAMPLE Bear Vertical Call Spread Currently XYZ trades at 25 share The investor believes the stock will fall and wants to earn income but does not want to simply sell calls because of the risk involved Instead the investor employs the Bear Spread strategy selling an in the money strike 20 call for 6 00 share and buying an out of the money strike 30 call for 1 00 share Using this strategy the maximum loss is the difference between the option strikes less the call premium received 30 20 5 5 or 500 see above The maximum profit an investor can receive is the premium received from selling the call less the premium paid for the out of the money call 6 1 5 or 500 The breakeven price of 25 is calculated by adding the net credit of the spread to the strike price of the short option Bear Call Spread Gain Loss at Expiration i p 3 5 E 2 l lt 18 20 22 24 26 28 30 32 STOCK PRICE in dollars Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long options investors may lose 100 of funds inv
47. ation will be better than the prices for the separate legs combined will be uncommon Please note the indicative prices are not firm quotes and may not be available when an order is sent for execution Sell Write In a Sell Write an investor sells a stock short and simultaneously writes puts against it If the puts expire out of the money the investor will have collected the premium of the option he is effectively generating income against his short position Additionally the investor will participate in any drop in the security down to the strike price of the option If the option expires in the money it will be exercised and the investor will have to buy back his shares at the option strike price On the upside the underlying security has to rise further than the collected premium before money is lost so the written put also provides a limited amount of upside protection This strategy is different from covered put writing only in that the investor does not have a short position in the security prior to selling the option contracts rather they are done at the same time For use when investor anticipates e Flat to Slowly dropping market Financial Characteristics 120 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading e Maximum Loss Stock price premium for written put In addition investor has opportunity cost of stock dropping below the strike price of the put e Maximum Gain Put
48. aximum Loss vs Long Stock Current Stock Price Strike Price of Put Net Premiums e Maximum Loss vs Short Stock Strike Price of Call Net Cost of Collar Current Stock Price e Maximum Gain vs Long Stock Strike Price of Call Current Stock Price Net Premiums e Maximum Gain vs Short Stock Current Stock Price Strike Price of Put Net Premiums Objectives 122 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading e Hedge an existing position for the short term that customer is willing to sell buy in at a set price e Risk mitigation in exchange for limited profit potential e Lower cost protection than purchase of protective put alone EXAMPLE Collar on long equity position An investor is long 100 shares of XYZ at 64 00 and wants to protect his downside risk using a protective collar The important things are the percentage loss the customer is willing to assume and the point that the investor is willing to lose the stock through assignment of the short call position Lets assume that the investor is only willing to lose 5 to 10 percent on the downside and will only sell his stock on a 10 to 20 percent move upwards Let s assume that the XYZ 60 Puts are trading at 95 and the XYZ 75 Calls are trading at 95 The net effect of establishing a collar long stock long put short call using these two strikes is a net debit credit of 0 The investor is protected after a 6
49. been updated with the quote information for the new symbol To make the symbol field background white press Enter on your keyboard 3 If necessary change the quantity using the arrow buttons or the following keyboard keys e Up Down keys to increase or decrease in increments of 500 e Left Right keys to increase or decrease in increments of 100 e Shift Up Down keys to increase or decrease by 10 e Shift Left Right keys to increase or decrease by 1 e Or click in the quantity field and type the number of shares or contracts TIPS e You can also click the button and enter a dollar value to see how many shares you could trade for that amount e To set the default quantity to a different amount go to Settings gt General gt Orders gt Quantity in the Trading window menu 4 Choose whether to place a Limit or Market Order Type 5 If placing a Limit order type click on a price level in the Level II area of the Trading window to set the price Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 91 StreetSmart Pro User Manual 10 11 12 13 If necessary change the Price using the arrow buttons or click in the Price field and use the following keyboard commands e Up Down keys to increase or decrease by 05 e Left Right keys to increase or decrease by 01 e Shift Up Down keys to increase or decrease by 005 Select the Direct Access order route you wish to use or you may
50. chasing the in the money put The maximum the investor can profit is the difference between the strike prices used to create the spread less the cost of establishing the spread If the security rises in value the maximum the investor can lose is the difference between the premium paid for the long put and the premium received from the short put For use when investor anticipates e Declining market security depreciation Financial Characteristics e Maximum Loss Net premium outlay Premium Received Premium Paid e Maximum Gain The difference between the strike prices less the cost of establishing the spread Objective e Speculative gain The maximum loss on a spread position remains limited as long as and only as long as the integrity of the spread is maintained If the investor trades out of or exercises the long put the maximum loss is no longer limited EXAMPLE Bear Vertical Put Spread Currently XYZ trades at 25 share The investor believes the stock will fall and wants to participate in the downward movement but does not want to simply buy Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 131 StreetSmart Pro User Manual puts because of the expense risk involved Instead the investor employs a spread strategy buying an in the money put strike 30 for 6 00 contract and selling an out of the money put strike 20 for 1 00 contract Using this strategy the maximum loss is the dif
51. ching buy or sell The maximum order size is 5 000 shares You can trade securities Currently most NASDAQ NASDAQ equities only or options and certain listed securities are available for trading during the Extended Hours Session at Schwab Unexecuted limit orders Unexecuted extended Like orders placed during placed during the day hours orders are the Standard Market session do not carry over canceled at the end of Session unexecuted to the Extended Hours the session and do not shares are either auto Session carry over to the next canceled or remain on standard market or the books of the ECN Extended Hours Trading until the end of the day if Sessions you have changed your Auto Timeout setting to zero In general higher Lower trading activity Lower trading activity trading activity means may result in lower may result in lower more liquidity and a likelihood of order likelihood of order greater likelihood of execution plus wider execution plus wider order execution spreads and greater spreads and greater price fluctuation price fluctuation NOTE Direct Access order destinations do not make a distinction between the standard session and the extended hours sessions Orders can be sent anytime during the ECN s or NASDAQ s hours of operation Also be aware that while some ECNs accept market orders this is usually only during the standard session between 9 30am and 4 00pm ET 140 Copyright Charles Schwab a
52. commissions to use in calculating the Commissions estimated order cost NOTE Only enter a commission value for the type of commission structure currently assigned to your account Do not enter a value in both the per trade and per share fields Leave one of the fields blank Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 81 StreetSmart Pro User Manual SmartEx Trading HOW SMARTEX ORDERS ROUTE SmartEx is a trade execution technology that combines the best of intelligent order routing IOR with market maker liquidity enhancements SmartEx is designed to deliver trade executions that are as good as if not better than what you would expect to receive using IOR alone Currently SmartEx technology is used for executing NASDAQ National Market securities Orders for listed securities continue to be executed according to the individual execution methods of receiving specialists SmartEx is an electronic execution technology designed to hunt and seek the best available price for your retail sized marketable orders SmartEx automatically seeks the liquidity from the best price displayed in the market whether it is from an ECN or a market maker and provides an execution based on the liquidity available If there is insufficient size at the best price in the marketplace SmartEx will automatically continue to route the remainder of your order at each subsequent price until your entire order has
53. d messages that be generated Warning Messages include Triggered by You have an open order for this security Duplicate order 70 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading The security you are buying is not marginable Security cannot be bought on margin or sold short Please Note The margin requirement for your Maintenance margin of the symbol is XX security is something other than the standard 30 The price you have entered is below the last Limit price is away from available quote If you believe this condition current price should not exist please re examine your order for any possible errors The price you have entered is above the last Limit price is away from available quote If you believe this condition current price should not exist please re examine your order for any possible errors The order you have requested Buy at a Limit of Limit price is away from LIMIT_PRICE is significantly above this current price security s closing price If you believe this condition should not exist please re examine your order for any possible errors Extended hours session The order you have requested Sell or Sell Short Limit price is away from at a Limit of LIMIT_PRICE is significantly below current price this security s closing price If you believe this condition should not exist please re examine your order for any possible errors Extended hours session
54. dow will open displaying the fill events at the bottom Sorting by Column Click on a column name to sort by that column click again to reverse the sort order Press Shift and click on a second column to perform a secondary more detailed sort within the primary sort For instance if you wanted to see all the Open Buy orders you could do a primary sort on Status and a secondary sort on Action and the Open Buy orders would be grouped together Order Status automatically updates when orders are executed either via StreetSmart Pro or other Schwab channels Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 141 StreetSmart Pro User Manual Account Detail 00000000 File view Settings Alerts Order Status Order Status Saved Orders Alerts Balances Li anadal m Open IBAB Opt Buy to Ope NOTE Short Sell Exempt orders will display in your Order Status tab A customer service representative may enter Short Sell Exempt orders on your behalf in certain limited circumstances The most common instance when this may occur is when liquidating the underlying security where the position is held as either an equity right warrant or convertible In these circumstances the securities are not in an acceptable form for delivery on settlement date Note that you must file an exercise for the right warrant or convertible before your order to liquidate the underlying security can be marked as Short Sell E
55. e extended trading day 8 00 p m ET Portions of the order not filled immediately upon reaching the market are canceled Special Conditions Description Min Qty A special condition that specifies the minimum execution quantity the client will accept with any amount up to the specified Quantity thereafter Available for limit IOC orders only Specifies the reserve size for the order Must be a round lot equal to or less than the order quantity Reserve size has no time priority in Level II Only the displayed portion of the order will have time priority EXAMPLE You enter a bid with 5 000 as the total quantity but 1 000 as the Max Floor value Your order will display as 1 000 shares but if yours is the only bid when an offer arrives for 10 000 shares at your price your entire 5 000 shares will execute However if 3 other bids for 3 000 shares each were behind you at the same price only your displayed 1 000 would execute along with 9 000 shares from the other three bids Peg Diff Added to the bid or offer to produce the actual order price Allows more flexibility in your order EXAMPLE To peg the offer minus 02 Peg Diff must equal 0 02 the negative sign is required Features only available when Spec Cond is checked in the Trading window The information provided on this page is subject to change at any time To get the most current information please go to the INET web site ONTD ECN General Information
56. e in the underlying stock price Theta The change in option price in relation to the time left before the option expires The change in option price in relation to a 1 change in volatility The change in the price of an option resulting from a 1 change in interest rates Ask Implied Implied Volatility based on ask price Volatility Bid Implied Implied Volatility based on bid price Volatility PLACING AN OPTIONS ORDER The following figure shows the Trading window open to the Options tab 3 Trading 2 00000000 Microsoft Corp File Settings Stocks Options Adv Opt MSFT 2673 SelltoChse Buy to Open W Cale V Pas Neg v SelitoOpen Buy to Close Strike 0 05 0 05 0 05 MSQ KI Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients To Buy or Sell an Option 1 Access Options trading by clicking the Options tab in the Trading window 2 Check either Calls Puts or both and select an expiration month 3 Click on the option of choice in the Options Window 4 Click one of the following options NOTE These buttons are only actionable if you have been approved to trade options Sell to Close Click to sell any long option positions that are currently
57. e order price will automatically adjust as the bid or ask moves until the order executes or the stock trades beyond your limit price Orders may be adjusted a penny up or down to avoid locking the market EXAMPLE XYZ is currently quoted at 20 bid x 20 05 ask A Market Peg order to buy XYZ with a limit of 20 10 will be submitted at 20 05 If the quote changes to 20 05 bid x 20 10 ask the order price would change to 20 10 If the order is not executed it will not update beyond the limit price and will remain posted at 20 10 Primary Peg Pegs the order price to the bid if buying or the ask if selling OTC securities or the best exchange bid ask for Listed securities The order price will automatically adjust as the bid or ask moves until the order executes or the stock trades beyond your limit price EXAMPLE XYZ is currently quoting at 20 bid x 20 05 ask A Primary Peg order to buy XYZ with a limit of 20 05 will be submitted at 20 If the quote changes to 20 05 bid x 20 10 ask the order price would change to 20 05 If the order is not executed it will not update beyond the limit price and will remain posted at Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 93 StreetSmart Pro User Manual 20 05 Times In Force Description Day Can be entered after 7 00 AM ET and expire at the end o the extended trading day 8 00 p m ET Portions of the order not filled immediately upon reachin
58. eed to be closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Straight Puts Straight Puts refers to the purchasing or selling of put options to open a position This strategy is also commonly referred to as Long or Short Puts Generally these two strategies are speculative in nature Long Put A strategy consisting of the purchase of a Put option This strategy is designed for a prediction that the underlying stock or index may decline For use when investor anticipates e Downward market direction security depreciation Financial Characteristics e Maximum Loss Debit amount paid for the option e Maximum Profit Strike price less debit paid for option e Break Even Strike price of option less the debit amount paid for the option Objective 116 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading e Speculative gain The maximum loss on a long put is limi
59. emains active until it is canceled for going unfilled the StreetSmart Pro software provides an automatic order cancel feature for your Direct Access orders This cancel feature may protect you in a fast market and will also provide you with protection in the event of a network or system outage Auto cancel settings for Direct Access can be changed by going to the Trading window menu and clicking Settings gt General See the Trading Window Menu topic for more details about these important settings 100 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading General Orders Li Data L2 Data Time amp Sales Commissions Execution Settings Quanlity Ordes Verification O Save Curent Quantity Always View Warnings O Set Quantity to Open Position C Defaut INET Orders to 10C Set Quantity to Defaut Default MM Dbl Cik to SuperMontage Defaut Share Size 1000 Pop up Execution Panel Outside Lvl Il Default Contract Size f Auto Cancel Timeouts SuperMontege fo Price Increment 10 01 ECN 180 NOTE Bold check boxes affect all Trading Windows in al layouts AUTO CANCEL TIMEOUTS Note that changes to these settings are isolated to the computer on which you make them If you access your software from another computer you will need to change your timeout settings there as well SuperMontage This will automatically send a cancel after the number of seconds you put into the text box for SuperMontage
60. enu once ARCA is chosen as the order route The default is a limit order Minimum decimal increment in order price 001 Day order available if Auto Cancel time is set to 0 Default cancellation time 180 seconds Trading Hours 7 00 a m to 8 00 p m ET for Limit orders Trading Hours 9 30 a m to 4 00 p m ET for Market orders All ARCA limit orders will be canceled after the close at 8 00 p m ET ARCA Order Routing 92 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Order Types Description e Marketable Limit Orders Matched with the ARCA book or preferenced to other market participants using ARCA s SmartBook logic The order price may be improved if a better price appears after your order has been routed by ARCA Non Marketable Limit Orders The order is posted to the ARCA book ARCA posts the best bid and offer in their book to Level II MMID ARCA NOTE Your price may not cross or lock the market These are matched with the ARCA book if there is volume at the inside If ARCA is not at the inside the order is routed using ARCA s SmartBook logic Any residual will not be routed to the next price level until all quotes at the current best bid or offer are exhausted e Criteria for routing orders fill history time and size shown e Market orders are not accepted after 3 59 p m ET Market Peg Pegs the order price to the ask if buying or to the bid if selling meaning th
61. es affect all Trading Windows in al layouts NOTE The Settings gt General window includes additional features for Direct Access and other display settings See Configuring the System for information about updates to the General Settings dialog box Order Verification applies to all orders regardless of whether you route your order to SmartEx or one of the Direct Access destinations After you click one of the action buttons when routing an order using a Direct Access channel a pop up window automatically displays your order so you can verify its accuracy before submitting it The Order Verification window gives you e Details of your order and estimated cost if you have set this up See Settings gt General gt Commissions e Warning and informational messages e Error messages related to the order Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 69 StreetSmart Pro User Manual SmartEx Order 00000000 Order You would like to Buy 1 000 shares of AMZN 40 11 Limit DAY for account 00000000 Errors Warnings The price you have entered is above the current quote If you believe this condition should not exist please re examine your order for any possible errors 179 Do Not Place Order You have the option of deactivating these settings in the Settings gt General window You can e Turn off both Order Verification and Warnings or e Keep Order Verification on and tur
62. es the stock will fall and wants to benefit from the downward movement The investor shorts a Straight Call option strike 20 for 6 00 share 1 contract 600 The maximum loss is unlimited should the stock prices suddenly rise in price The maximum loss would be calculated by taking the closing price at expiration less the strike price less the credit received on the sale of the option If the stock closes at 32 on expiration there will be a 6 loss 32 20 6 6 loss The maximum profit an investor can Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 115 StreetSmart Pro User Manual receive is the credit received when selling the option For example if the same XYZ 20 strike option is sold for 6 and the stock closes under 20 the option expires worthless and the investor can pocket the entire 6 The break even point for the strategy occurs when the price of XYZ is at 26 Short Call Gain Loss at Expiration g E E z 5 2 0 S z7 5 lt o 5 10 15 20 25 30 35 STOCK PRICE in dollars Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long options investors may lose 100 of funds invested In the money long puts n
63. ested In the money long puts need to be Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 129 StreetSmart Pro User Manual closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Vertical Put Spreads A strategy consisting of the purchase of a put option with one expiration date and strike price and the simultaneous sale of another put with the same expiration date but a different strike price Depending on whether the purchased put has a higher or lower strike than the sold put a vertical put spread can generally be profitable if the underlying stock or index rises a bull vertical put spread or falls a bear vertical put spread sufficiently Bull Vertical Put Spread Similar to the Bull Call Spread the Bull Put Spread strategy may allow the investor to profit from an upward movement in the underlying security To utilize this technique the investor sells puts at one strike
64. ex will give you a list of all indices LEVEL II QUOTES AND TIME amp SALES The lower portion of the Stock Tab displays Level II information as shown in the following figure Trading 1 00000000 Microsoft Corp SE File Settings Stocks Options Adv Opt CHa Change 012 6 Volume 32 767 974 Last 25 65 Open 25 61 Hi 25 79 Ratio 125x2118 ffClose 25 53 Lo 25 5592 Spread 0 01 L 25 66 Hf SmarEx SpecCond Sell Buy Limit l DAY i Sell All Short Save Ist 25 65 2 500 geal st 25 66 1 800 2nd 2564 020 nd 25 67 200 3rd 25 63 100 3rd 25 68 1 000 25 65 25 65 25 65 25 65 25 65 25 65 25 66 25 66 25 66 25 66 25 66 25 66 Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients NOTE Level II data is available to you for a fee if you wish to subscribe to the service However the fee may be waived if you meet certain eligibility requirements For additional information please contact your Schwab Active Trader Team e The left column shows the Market Maker Exchange and ECN best Bid quotes with the number of shares available at a particular bid e The middle column shows the Market Maker Exchange and ECN best Ask quotes w
65. ext day s session After Hours Trading e Individual investor orders may be executed from 4 15 p m to 8 00 p m ET Orders can be placed as early as 4 05 p m ET but order execution will not begin until 4 15 p m Orders cannot be placed after 8 00 p m ET Your orders will be processed through ARCA Trading occurs on NASDAQ and the exchanges through a variety of Market Makers and ECNs Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Extended Hours Trading via Direct Access Please refer to the table in Direct Access Route Comparison for the hours of operation for each routing channel These destinations do not in any way differentiate orders based on the time of day the order is submitted For NASDAQ equities your orders will be routed to your chosen destination 139 StreetSmart Pro User Manual All orders types available Only limit orders are Limit orders and some via StreetSmart Pro accepted subject to market orders are are accepted by Schwab account or security accepted subject to during this Trading specific limitations account or security Session subject to specific limitations account or security specific limitations All order sizes are While odd and mixed lot Maximum order size accepted round odd orders can be accepted limitations vary by and mixed lots their use may channel significantly reduce your chance of finding a mat
66. f letters to certain stocks to load them into the Trading window more quickly For example in the figure to the right AMZN s alias is AZ You would type in AZ into the Trading window and press Enter to load AMZN into the Trading window You can insert any combination of letters or use single letters If you choose to use the aliases this will take precedence over New York stocks For example if W has been assigned as the alias for WXYZ when W is typed into the Trading window WXYZ will load instead of the stock whose actual symbol is W Setting Up an Alias 1 Click in the Use Aliases box to activate 2 Type in a Symbol and Alias 3 Press the Add key or Enter to add it to the list 4 To delete one alias click on it in the list and click Remove 5 To delete ALL aliases click on Remove All NOTE Hot Keys can only be set for one Trading window and will be the same for any other Trading windows open You cannot set different Hot Keys for each Trading window Symbol Aliases IV Use Aliases Symbol Alias mm Add EE Remove All Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 75 StreetSmart Pro User Manual Links Links allow you to automatically load stocks into other windows when they are loaded into the Trading window Note that only the linkable windows open in your layout will be displayed in the Links list 1 Click on an item to link to the Trading window e News If li
67. ference between the premiums paid and the premium received 6 1 5 or 500 The maximum profit an investor can receive is the difference between the strike prices of the options used to create the position less the cost to establish the spread 30 20 5 5 or 500 In this example the strategy breaks even at 25 00 share The breakeven price of 25 is calculated by subtracting the net debit of the spread from the strike price of the long option Bear Debit Spread Gain Loss at Expiration o a G 5 J 2 A lt 18 20 22 24 26 28 30 32 STOCK PRICE in dollars Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long options investors may lose 100 of funds invested In the money long puts need to be closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Ca
68. flow of capital received when the investor establishes the position As a result if the value of the security falls below the strike price of the written call at expiration the investor will retain the initial amount received to establish the spread However if the security increases in value the investor may suffer a loss The spread strategy caps the maximum value of this loss at the difference between the two option strike prices involved in the transaction less the net premium received when putting on the spread 128 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading For use when investor anticipates e Declining market security depreciation Financial Characteristics e Maximum Loss The difference between the strike prices less amount received when establishing the spread e Maximum Gain The net premium received e Cash credit Objective e Speculative income generation The maximum loss on a bear call spread is limited as long as and only as long as the integrity of the spread is maintained If the investor trades out of or exercises the high strike call the maximum loss is no longer limited There is an additional risk associated with the expiration weekend If the short call is assigned while the long is not exercised for example the stock finishes between the two strikes the investor ends up with a short position in the stock Good news during the weekend could force even gre
69. g the market are canceled Special Conditions Description Discretion Allows you to have a displayed price and a discretionary price You can place the order at the price you d like to receive with a discretion amount for the maximum minimum amount you re willing to pay Available for limit orders only EXAMPLE A limit order to buy with a displayed price of 50 and a discretionary price of 50 25 is presented as Price 50 Discretion 0 25 Specifies the reserve size for the order Must be a round lot equal to or less than the order quantity Reserve size has no time priority in Level II Only the displayed portion of the order will have time priority EXAMPLE You enter a bid with 5 000 as the total quantity but 1 000 as the Max Floor value Your order will display as 1 000 shares but if yours is the only bid when an offer arrives for 10 000 shares at your price your entire 5 000 shares will execute However if 3 other bids for 3 000 shares each were behind you at the same price only your displayed 1 000 would execute along with 9 000 shares from the other three bids Peg Diff Added to the bid or offer to produce the actual order price Allows more flexibility in your order executions EXAMPLE To peg the offer minus 02 Peg Diff must equal 0 02 the negative sign is required Features only available when Spec Cond is checked in the Trading window The information provided on this page is subject to change
70. gies All strategies described herein require the use of a margin account Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Placing an Advanced Options Order 1 Enter the underlying stock symbol and press Enter Write Unwind Rollout Collar Straddle Vertical Sprd Calendar Sprd Combo MSFT x pay Submit to Open Buy MSFT 25 234 ji Cancel Sell MOFEC 10 108 Nex Mamones 1513 7 A0N fca i Stock and or option symbols and price and volume data shown here are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients 2 Select the Time in Force Day is currently the only TIF available Submit to Close Enter the number of contracts you wish to trade You may also check the AON All or None which will ensure that your order will only fill if the entire quantity is available
71. he Symbol field to show recently entered stocks then click on the one you want to load into the Symbol box for a quote MSFT v e Right click on the symbol from most any window and click Load Symbol into the Trading window e Double click on the symbol in the Watch List e To view the current quote for an index Level 1 needs to be enabled Enable Level 1 in the Trading Window menu by clicking Settings gt General gt L2 Data tab and then checking Level 1 SYMBOL LOOKUP Use this tool Ato look up the name or symbol of a company For example if you do not know the symbol for a company you can type in the full or partial name of the company and get back a list of companies with similar names along with their symbols Symbol Lookup Lookup by Name C Symbol Security Type IY Stock l Index In the main menu click Tools gt Look Up Symbol or click the icon A in the toolbar e Enter the name or as much partial information as you have and click Enter You may also check the Symbol option and simply enter a ticker symbol to get a company name This can be done for either Stock or Index e The closest matches to what you entered will appear at the top of the list 64 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading e You can load the data directly into the Quotes Window by right clicking the symbol and selecting Load symbol into Trading Window e Clicking on Name and Ind
72. hould be viewed more as a closing transaction than as a true option trading strategy Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long options investors may lose 100 of funds invested In the money long puts need to be closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Sell Writes amp Unwinds Of the kinds of multi legged orders that can be placed as a package using this feature sell writes and unwinds are unique in that one leg of the trade is for an option the other is for an equity Because the option leg trades on an option exchange and the equity leg on a separate equity exchange the circumstances in which the Net price indic
73. hwab amp Co Inc 2006 All rights reserved 0106 5667 61 StreetSmart Pro User Manual W Sell All If you are selling a long position you can check the Sell All checkbox to sell the entire position including fractional shares Read the Sell All Checkbox topic for more information Action Once the order fields are set up to reflect the type of order Buttons price and share size click on the Buy Sell or Short button to route the order The Save button appears when any SmartEx order route is selected allowing you to save the order to the saved order window Level II Aggregate Aggregate quotes shows the number of shares being quoted at each price level You can view hide the aggregation by checking Display Aggregate Quotes in the Trading window menu Settings gt L2 Data gt Display Settings Increase or decrease the number of aggregate levels shown by clicking on the divider bar between the aggregate and regular Level II area and dragging it up or down Level II Level II Shows the depth of all bids and offers in a stock Each line shows the four letter Market Maker ECN ID or listed stock Exchange the price at which they are bidding or offering and the number of shares they are making available at that price NOTE Level II data is available to you for a fee if you wish to subscribe to the service However the fee may be waived if you meet certain eligibility requirements For additional information please con
74. ify the hours of operation at any time A Schwab Extended Hours Trading Session or any security traded therein may be temporarily or permanently suspended without prior notice at any time at our discretion 138 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading RISKS OF EXTENDED HOURS TRADING Extended Hours Trading Sessions may not be suitable for all investors since they pose certain risks including but not limited to lower liquidity changing prices news announcements higher volatility and wider spreads For more information see the StreetSmart Pro Agreement and Disclosure Extended Hours Trading Sessions do not take place on official Exchange holidays or when the Exchanges close early Schwab reserves the right to change or modify the hours of operation at any time A Schwab Extended Hours Trading Session or any security traded therein may be temporarily or permanently suspended without prior notice at any time at our discretion Extended Hours Trading at Schwab Standard Market Hours Individual investor orders may be executed from 9 30 a m to 4 00 p m ET Orders can be placed at any time Pre Market Trading e Individual investor orders may be executed from 8 00 a m to 9 15 a m ET Orders can be placed as early as 8 05 p m the previous trading day but order execution will not begin until 8 00 a m Orders cannot be placed until after 8 00 p m ET for n
75. ints or the percent you specified in the Trailing Amount field EXAMPLE In the image below we have a trailing stop of 5 set T 5 SmartEx E C pts TrailingS vi DAY v If at any point the price retraces the specified Trailing Amount a SmartEx Market order will be routed for the quantity you specified If you place an order to close a position using a trailing stop set to 5 if the bid price increases 9 and then drops 5 the order will be sent at that time The change from the time that the trailing stop was placed would effectively be 4 above where you placed the order Reinvest Dividends Check to reinvest dividends for this security 88 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Special Conditions Designate special conditions including e AON All or None e DNR Do Not Reduce for GTC orders only e Min Qty Minimum Quantity e Use only for orders over 300 shares e When checked the amount field can be changed but the amount must be at least 200 shares e Designating minimum shares applies to the first fill only Order Verification is The action button at the bottom of the window Selected should read Verify Order Click it to open the Verification window See Trading Window Menu topic for details Save Button displayed Click to post the order to the Saved Orders tab at bottom of window in the Account Detail window No further validation editing will be do
76. ion window will display unless you have elected to turn it off See the Order Verification topic for more information e The Save button is actionable only when either SmartEx Schwab Pre Market or Schwab After Hours is selected in the order route drop down This feature allows you to save the order to the Saved Order tab for later submission e If the account is restricted to liquidations only the action buttons will be grayed out e To liquidate equities and options in a restricted account go to the Account Detail Positions tab and select Close from either the right click or the Positions drop down menu ORDER VERIFICATION StreetSmart Pro software provides you with Order Verification and Warning amp Informational Messages related to your order These two settings are found in the Trading window menu under Settings gt General and the default settings are checked to activate these important features 68 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading General Orders L1 Data L2 Data Time amp Sales Commissions meetin g Quantity E Order Vertication Save Curent Quantiy Always Set Quantity to Open Postion O Defauk INET Orders to IOC Set Quantity to Default E Defauk MM Dbi Cik to SuperMontage Defauk Share Size 1000 E Pop up Execution Panel Outside Lv Il Detauk Contract Size 1 Axto Cancel Timeouts SuperMontage Price Increment 0 01 ECN NOTE Bold check box
77. it or debit for the order TIP The debit is the ask price of the option being bought The credit is the bid price of the option being sold The net is the difference between the bid price of the option being sold bid and the ask price of the option being bought ask Buy Write When opening a Buy Write you will need to select the Unwind price from the Debit side and when closing Unwind select from the Credit side Straddle The net is the total of the two bid prices of the options being sold bid or the total of the two ask prices of the options being bought ask S all Puk Buy Call Sel Put Exch Net Size Exch Net Size Sell Call Buy Put MOF EC MOF OB Buy 15 00C Sell 10 00P 1 CBOE 1015C 2738 Seb 18 00C Buy 10 00P MOF EW MOF QV Buy 1750C Sell 1250P CBOE 765Cr 2905 Sef 17 80C Buy 1250P MQFED 7 MQF QC Bw 2000C Sell 15 00P 1 CBOE S15Cr 3329 Sef 20 00C Buy 15 00P MSO EX MOF OW Buy 22500 Sell 17 50P CBOE 265Cr 3629 Sef 2250C Buy 17 50P MSO EJ MOF OD Bw 25 00CY Sell 20 00P f CBOE O35Cr 5837 Seb 25 00C Buy 2000P MSO EY MSO OX Buy 27 50C Sell 2250P Sel 27 50C Buy 2250P MSQ EK MSQ QJ y S00C Sell 25 00P CBOE 015C 6217 I Sef 30 00C Buy 25 00 P MSG Ez MSO OY Buy 32500 Sell 27 50P C80E 2200 3978 I Sef 3250C7 Buy 2750P MSO EL 7 MSO GK Bw 300C Sell 30 00P CBOE 4650 4590 I Sel 35 00C Buy 30 0 P 9 Select the Exchange you wish to price indications for from the drop down list Sell Call
78. ith number of shares available at a particular ask e The right column Time and Sales shows the most recently reported trades the quantities of shares traded and the time e The top line of both the Bid and Ask can display the Level I quotes if you go to Settings gt General gt L2 Data tab and check the Level 1 box e For Level II users each line shows the Market Maker or ECN ID with their Bid Ask price Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 65 StreetSmart Pro User Manual e For Listed equities each line shows the Exchange with its Bid Ask price and the number of actual shares available on the specialist order book or ECN book A Aggregate e Aggregate quotes show the number of shares being Quotes quoted at each price level The size is the sum of all of the individual market maker ECN quotes at that level e You can view hide the aggregation by checking Display Aggregate Quotes in the Trading window menu Settings gt L2 Data gt Display Settings e Increase or decrease the number of aggregate levels shown by clicking and dragging the divider bar between the aggregate and Level II areas B Level I Shows only the inside bid and ask for a stock It does not reflect the depth of the bids and asks It is reflected as L1 in both the bid and ask boxes You will still be able to view certain ECN quotes but not the individual Market Makers or Exchanges c Level II Sho
79. l _ Buy action Lirnit v i wil Sell Short eae Buttons Order Route Order Time in Sell All Special Type Force TIF Conditions Limit Price 1 Enter the symbol in the symbol field and press Enter on the keyboard 2 Change the quantity using the arrow buttons or the following keyboard keys e Up Down keys to increase or decrease in increments of 500 e Left Right keys to increase or decrease in increments of 100 e Shift Up Down keys to increase or decrease by 10 e Shift Left Right keys to increase or decrease by 1 e Or click in the quantity field and type the number of shares or contracts TIP You can also click the button and enter a dollar value to see how many shares you could trade for that amount 3 Choose whether to place a Limit Market or Trailing Stop Order Type If placing a Limit order type click on a price level in the Level II area of the Trading window to set the price 5 If placing a Trailing Stop order enter the number of points or the percentage for the trailing stop 6 If necessary change the Price using the arrow buttons or click in the Price field and use the following keyboard commands e Up Down keys to increase or decrease by 05 e Left Right keys to increase or decrease by 01 e Shift Up Down keys to increase or decrease by 005 7 Choose the Order Route and Time in Force you wish to use from the drop down lists if not already done 8 Click Buy Sell or Short from the Acti
80. lease read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Vertical Call Spreads A strategy consisting of the purchase of a call option with one expiration date and strike price and the simultaneous sale of another call with the same expiration date but a different strike price Depending on whether the purchased call has a higher or lower strike than the sold call a vertical call spread can generally be profitable if the underlying stock or index rises a bull vertical call spread or falls a bear vertical call spread sufficiently Bull Vertical Call Spread A Bull Spread strategy may allow an investor to profit from upward movements in the underlying security The technique requires the investor to purchase at the money or in the money calls at a particular strike price and sell out of the money calls at a higher strike price with the same expiration date The cost of purchasing the call option will be partly offset by the premium received for the sale of the out of the money call This strategy is often termed a debit spread because of the net capital outlay that is required A Bull Spread delivers maximum profit when the stock trades at or above the higher strike price at expiration For use when investor
81. ll your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Calendar Spreads The most common form of calendar spread involves the purchase of a longer term option and the sale of an equal number of shorter term options of the same type and strike Most spreads with the exception of spreads on underlying securities with very high carrying costs will initially be placed for a debit because of the greater time value of the longer term options This strategy can potentially be used to generate income and or to reduce increase the cost basis of an eventual stock purchase sale Using calls this strategy has similarities with covered call writing buy writes For use when investor anticipates e Slowly rising or flat market e Price of the underlying security to be slightly below the strike at short option s expiration 132 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Financial Characteristics e Maximum Loss Net Premium Paid In addition client may have to exit the long early via sale or exercise to cover an assignment on the short losing the opportunity for further gains e Maximum Gain Unlimited once the short option expires If the short call is assigned on or before expiration the client will have a short position whose losses should the stock price rise will outweigh any gains made on the long
82. mp Co Inc 2006 All rights reserved 0106 5667 Trading Order Status ORDER STATUS The Order Status tab in the Account Detail window displays all orders both open and closed placed via any Schwab channel including Schwab com TeleBroker and Velocity The Order Status tab displays Open orders closed orders that have been filled or canceled orders You can sort on any column in the Order Status window by clicking on the column header you want as your sort key Contingent Orders This applies to SmartEx trailing stop orders that are held up until the trailing stop price is met Once the price is met the order status changes to Open and a market order is submitted for execution Account Detail 00000000 Fle Yew Settings Alerts Order Status Order Statue Saved Orders Status Symbol E Contingent DELL Eqty Buy 1000 Trailing Stop 5 00 Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients Partial fills The Quantity Filled At column displays information for the first fill If there are additional fills this column displays the average price with the number of shares To view the individual fills double click on the order and an Order Details win
83. n off only Warnings However it is important that you understand the risks involved in deactivating either of these settings Warning re you sure you want to turn off Order Verification WARNING IF you uncheck the Order Verification you will submit Orders without a chance to verify them and you will also not see warning messages relating to your orders By unchecking you accept the associated risks If you leave Order Verification checked an Order Verification window will display prior to submitting the order and you will see the terms of your proposed order Refer to the Order Verification amp Warnings Disclosure in the Help for more details on the risks of trading without warning messages IMPORTANT If you turn off Order Verification your orders are immediately submitted without a verification screen so you will not have the opportunity to review the terms of your order prior to entry and will not see warning or informational messages related to your orders By unchecking this feature you accept the associated risks of trading without an Order Verification window and messaging as described in the StreetSmart Pro Agreement and Disclosures ORDER WARNING MESSAGES The Order Warnings feature of StreetSmart Pro automatically opens a pop up window with warnings and important information about your order to review before you submit it The default setting is checked to activate this feature Here are some samples of the warnings an
84. nabled for Level II Show Equity Quote Volume in 100 s If unchecked the full volume for a quote will display If it is checked the quote will display without the last two zeros to Save screen space Show L2 Options Data Check to display the Level 2 Options tab in the Trading window For more information on Level 2 options review the Level 2 Options Tab topic Show Status of Bid Ask This information will appear in Level II Status of Bid Ask shows the current status of the Market Maker K closed O open L open non refreshed in the morning and closed in the evening This option will be grayed out if you are not enabled for Level IT Show Time of Bid Ask Displays in Level II the time that the price server received the quote Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 79 StreetSmart Pro User Manual This option will be grayed out if you are not enabled for Level II Sort Quotes by Sorts all the posted quotes at each Tier in Level II by Size Size and then Time where the largest size quote would be at the top of the tier If multiple quotes have the same size then sort by order of oldest first Watch ECNs Will highlight all ECNs on Level II Set the color of the highlight by going to Settings gt Colors and clicking on the color wheel next to Watches Red is the default color This option will be grayed out if you are not e
85. nabled for Level IT Watches You may choose to highlight four Market Makers ECNs in Level II The colors can be changed by going to Settings gt Colors and clicking on the color wheel next to Watches Red is the default color Color Watches at Inside Only If checked highlights the watched Market Makers ECNs only when they are at the inside bid or ask DISPLAY BID ASK QUOTES You have the option to integrate any available ECN books not available for all ECNs into Level II Check the boxes next to the types of data you wish you see in your Level II montage Update in Extended Hours If checked Level 1 data will update during extended hours trading If unchecked it will freeze at the prior close price TIME amp SALES DISPLAY SETTINGS New Time amp Sales This makes all new time amp sales to appear from the top Info at Top vs the bottom Color Time amp Will color code the Time and Sales for regular and ECN Sales Info prints The following are the default colors but you can change these by going to Settings gt Colors in the Trading window menu Green Trades at the inside Ask Red Trades at the inside Bid jite Gray Trades in between the inside Bid Ask Yellow Trades above the inside Ask Purple Trades below the inside Bid Gray Highlight Quote change not a transaction Show Time on This option will display the time of each print Sales 80 Copyright Charles Schwab amp Co
86. ne until the order is submitted Order Verification is The action button at the bottom of the window will Not Selected read Place Order Click to submit the order See Trading Window Menu topic for details Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 89 StreetSmart Pro User Manual Direct Access Trading DIRECT ACCESS ROUTE COMPARISON During the specified trading times for each routing channel Direct Access allows you to enter buy and sell orders for NASDAQ Listed and OTC stocks The table below shows a list of all the action types allowed with Direct Access NOTE Short sale orders can be placed as either day or GTC orders however GTC orders can expose you to substantial risk Although the stock may be borrowed on the day the order is entered it may not be available for loan on the day the order is filled An immediate buy in may result for your account The change order function is not accepted when routing orders via Direct Access Each routing channel has different order types hours of operation and order conditions The table below shows a quick reference guide for each destination including the following information hours of operation maximum number of shares order types and order conditions For more information about each destination view the individual topic for each Order Type of Hours of Order Order Security Destination Channel Operatio Types Conditions T
87. nked to the Trading window any stock loaded here will also load the most recent news on the stock in the News window e Strategy Matrix tool e Charts When a stock is entered into the Trading window the chart for that stock will also appear in the charts you select from this list The settings for the chart will stay the same but the stock it represents will change TIP You may link one chart to multiple Trading windows e Other Trading windows Click on OK 3 Every time a stock is entered into the Trading window the items linked will display that stock s information Clear Symbol Clears all symbols from the Trading window Symbol field List and drop down Click to change fonts Through the Color option you can change the background ECNs watches Market Makers you specified in the Trading window General Settings to Watch and Time amp Sales colors Click on the color wheel button g to display all the color choices Price Levels Custom v inverted Color Rotation Repeat Color Scheme PEE C Repeat Last Color Change the Price Level Color Scheme 1 Select from the drop down list whether to use the Custom Traditional Earth etc color scheme An example of the colors will display at the bottom of 76 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading the window 2 For Custom click on a level and then click the color wheel button to select a new color for tha
88. nue to hold the out of the money option for the possibility to participate in any further opposite movement by the underlying security However there is no guarantee the out of the money option would retain a high premium even with an increase in volatility Rather than selling following a dramatic price move the investor can continue to hold both options until expiration anticipating even more dramatic price movements in the future However unless such movements do occur time decay will eventually take its toll on both options premiums For use when investor anticipates e Dramatic movements in security price e g due to an earnings announcement but unclear whether movement will be up or down e Increased volatility Financial Characteristics e Maximum Loss Total premiums paid e Maximum Gain Unlimited e Loses value with time Objective e Speculative gain EXAMPLE Long Straddle XYZ trades at 25 00 share An investor anticipates that the stock will dramatically rise or fall in the near future The investor purchases one at the money put for 2 00 and one at the money call for 2 00 to participate in large movements in either direction Since each contract represents 100 shares the total cost to the investor for buying both contracts is 400 00 To break even the stock must either fall 4 00 share to 21 00 or rise 4 00 share to 29 00 at or before expiration The investor will profit if the stock goes up more than 4 00 share or
89. o Month select a month in which the options will expire Action Allow you to determine what type of trade you want to place Buttons TIPS e The red and green boxes you may see around the bid and ask prices indicate changing quotes and the color indicates the direction of the change e To see the details and cash requirements of option positions you have entered go to the Account Detail window and click on the Positions tab See the Positions Tab topic to find out which types of option strategies are available at each approval level Note that approval for one level includes approval for all lower levels For instance if you have Level 3 approval you may also enter Long Covered and Protective positions e For more information about equity options and advanced option trading strategies visit Schwab com and click on My Benefits located in the At a Glance tab OPTIONS TAB COLUMNS The Options Tab allows you to view up to 19 types of information about each option in a chain Configuring Options Tab Columns 1 Click Settings gt Option Page Columns in the Trading window The following window opens Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 103 StreetSmart Pro User Manual Columns Selected Columns Size Rho Ask Impbed Vololiity Bid Impled Volatity Descriptiorc The estimated volatility of a stock underlying an option based on the option price Set Defaut Cancel
90. o establish call or put options Sell to Open Click this button to write covered calls or puts Buy to Close Click this button to close a covered call or put position Cancel Click this button to cancel any pending orders for the option that is currently loaded hd Call Put Select whether to view the Call or Put for the current option Option Symbol Shows the volume for the current Feo on each Volume Feo Level II Shows the depth of all bids and offers in an option Each line shows the exchange ID the price at which they are bidding or offering and the number of contracts they are making available at that price TIP By going to Settings gt Colors you can specify unique colors for the different types of quotes displayed in Level II such as Non Firm Quotes and Auto Executing Exchanges Time amp Sales Shows every trade being reported as well as the share size of the trade and the time of the trade Time amp Sales is color coded Green Prints at the inside Ask Red Prints at the inside Bid Prints in between the inside Bid Ask Yellow Prints above the inside Ask Purple Prints below the inside Bid CATA Inside quote change ADVANCED OPTIONS Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 111 StreetSmart Pro User Manual Advanced Options Overview The Advanced Options tab simplifies the process of entering Complex Option orders By displaying potential pairings based on
91. o place a Limit Market or Trailing Stop Order Type 82 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 10 11 12 13 14 Trading If placing a Limit order type click on a price level in the Level II area of the Trading window to set the price If placing a Trailing Stop order enter the number of points or the percentage for the trailing stop If necessary change the Price using the arrow buttons or click in the Price field and use the following keyboard commands e Up Down keys to increase or decrease by 05 e Left Right keys to increase or decrease by 01 e Shift Up Down keys to increase or decrease by 005 Select the session in which you wish to trade from the order routing field SmartEx Schwab Pre Market Schwab After Hours For a comparison of each route view the SmartEx Order Types topic For SmartEx and extended hours orders the Time in Force TIF will always default to Day If you wish to use a different TIF check the Spec Cond checkbox You can check the Spec Cond box to set any additional order qualifiers or to submit a Stop or Stop Limit order This will require one more window to be reviewed prior to the Order Verification window To sell your entire position check the Sell All box The quantity will default to the shares you have available to sell When checked the quantity will become shaded See the Sell All topic for more information Once the Order Entr
92. of 180 seconds for ECN orders it is very possible not to complete an order in under three minutes depending upon the symbol market and routing method Commissions will be based upon the price and number of shares filled on each order To change the Auto cancel timeout setting go to the Orders tab in the Settings gt General window All orders and executions can be viewed in the Order Status tab of the Account Detail window or if there was more than one fill in the Order Detail window This window can be accessed by double clicking on the order or by clicking on the order and going to Orders gt Detail in the menu SMARTEX ORDER TYPES StreetSmart Pro allows you to select any of these SmartEx order and action types Order Types Action Types Market Buy Sell Oo change O Trailing Stops e A SmartEx Trailing Stop Buy Sell Short order is a stop order whose stop price will trail either the current inside ask if buying or inside bid if selling shorting at the time the order was submitted by the number of points or the percent you specified in the Trailing Amount field EXAMPLE In the image below we have a trailing stop of 5 set T 5 A Smarte x C pts Trailings DAY If at any point the price retraces the specified Trailing Amount a SmartEx Market order will be routed for the quantity you specified If you place an order to close a position using a trailing stop set to 5 if the bid price increases 9
93. ols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients When checked Sell All allows you to sell your entire position including fractional shares via SmartEx As the quantity field does not allow the input of fractional shares using the Sell All checkbox is the only way to send orders to sell fractional share amounts When Sell All is checked e The Quantity field displays the full share amount available for sale including fractional shares This quantity takes into account any open orders that you may have and any shares held that are currently non negotiable This amount cannot be changed when Sell All is checked e The Sell All checkbox can be turned on and off If turned off the quantity will revert to the default amount designated in the Trading window Settings gt General window e If you are using Sell All to sell your remaining fractional shares only Market Orders are allowed SPECIAL CONDITIONS SETTINGS 86 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading SmartEx orders can be qualified with the Spec Cond Special Conditions checkbox The Spec Cond box is already checked as the default and opens the Execute SmartEx Order window allowing
94. om the Messages Window A copy of your log files is maintained in the SSPro folder on your C drive for each day you log in to the software These files can printed in text format Please note that Schwab retains the official copy of these logs To print data directly from the Messages window before logging off go to File gt Print CHANGING OR CANCELING ORDERS Changing Orders To change a SmartEx order go to the Account Detail window Order Status tab and either right click on the open order then select Change or click once on the order to highlight it then click Orders gt Change A pop up box will appear prompting you to modify your order Note that you cannot change the order type of a SmartEx order to or from a trailing stop order after the order has been submitted You must first cancel the order and then resubmit with a different order type Direct Access orders can never be changed Canceling Orders You can request to cancel open orders via the Order Status Tab All Open orders have a green box in the left most column Because of the speed of execution and the short life span of market and marketable limit orders canceling these orders may not always be possible Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 143
95. on Buttons 9 If Order Verification is enabled in the Trading window Settings gt General window you will be asked to verify the details of your order before it is sent STOCK TAB FEATURES In the Stocks tab you can view e Level I data Real time best bid ask quotes volume change from close high low prices etc e Level II data Shows the depth of the market in a stock by displaying in real time the quotes of each Level II market participant Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 57 StreetSmart Pro User Manual e Level II aggregate Displays an aggregation of each price level to provide a quick overview of the quantity available at each price level e Time amp Sales Shows each trade in the stock including quantity and price color coded to show its relation to best bid and ask prices Most orders will be routed from the Trading window so there are fields for selecting the order price quantity venue time in force i e Day Good Til Cancel etc Then use the Buy Sell or Short buttons to submit the order za Trading 1 00000000 Microsoft C A File Settings Stocks Options v Opt Change 0 12 Q Yolume Own Last 25 65 epen 561 Hi 2579 ratio 125121 1000 H lose 25 5 25 559 Spread 0 01 GS L 25 66QH SmanE x R pecCond Sell Buy Givi iar serar shor T save Ist 25 65 2 500 ist 25 66 1 800 2nd 2564 020 nd 2567 200 3rd 25 63 100 frd
96. orders only The default setting is 0 seconds which means it will remain live until canceled or executed The number of seconds that direct ECN orders are live before the system auto cancels them A value of 0 disables auto cancel The default is 180 seconds Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 101 StreetSmart Pro User Manual Options Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC OPTIONS TRADING TAB View the calls and puts being traded for a stock and place trades on individual contracts in the Options tab of the Trading Window Enter the underlying symbol select the option you wish to trade select the variables for the order such as Quantity Limit Stop prices and more Then click the button for the action you wish to take Buy to Open Sell to Close etc to send the order The Options Trading tab includes real time streaming options data and for clients approved for options trading automatic electronic access to all
97. ortunity cost of stock appreciation beyond the strike price of the call e Maximum Gain Call premium plus stock appreciation up to the strike price of the call e Cash credit from call premium Objectives e Modest risk mitigation and income generation EXAMPLE Buy Write Currently XYZ trades at 25 share An investor would like to participate in some of the upward movement in the stock and to generate additional income at the same time Using the Buy Write strategy the investor buys the stock 100 shares and sells one out of the money call 30 strike price for 3 00 per share for a total cash credit of 300 00 If the stock appreciates past 30 00 share the total gain is capped at 800 00 The stock must fall below 22 the breakeven price before the investor loses money so the short call provides limited downside protection Buy Write Gain Loss at Expiration 1 000 800 stock covered call 600 400 200 0 200 400 600 800 1 000 Fors H ra ae K 5 Ga lt 15 17 19 21 23 25 27 29 31 33 STOCK PRICE in dollars Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 119 StreetSmart Pro User Manual Unwinds Unwind is the term used to refer to the order that closes out the positions opened in a buy write strategy The unwind for the example in buy writes above would be to sell XYZ and to buy to close the 30 short call Unwinds s
98. primary listed options exchanges You may also trade index options such as OEX Use the Adv Options tab to if you wish to place multi leg option trades 5 Trading 2 00000000 Microsoft Corp File Settings Stocks Options Adv Opt MSFT 26 73 SET z Sellto Chse Buy to Open M Cale V Pas Nes Selito Open Buy to Close 0 05 0 05 0 05 MSQ KI Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients The following table describes some of the features of the Options tab Symbol Field e Enter a stock symbol in the symbol field and press Enter The option chain will be loaded into the Option tab 102 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading If you know an option symbol but don t know the symbol for the underlying stock you can you enter the option symbol preceded by a period or followed by o into the symbol field The underlying stock symbol will load into the symbol field whether you are on the Stocks or Options tab within the Trading window Calls Puts Click the check boxes to specify whether you want to view calls puts or both Expiration Click the down arrow next to the call put display buttons t
99. r be changed Canceling Orders You can request to cancel open orders via the Order Status Tab All Open orders have a green box in the left most column Because of the speed of execution and the short life span of market and marketable limit orders canceling these orders may not always be possible TRADING WINDOW MENU The menu bar is accessible by right clicking in the Trading window and selecting Show Menu Bar Will close the Trading window To reopen click the Trading window icon in the Main Tool Bar or go to Tools gt Start Tool and change the number of Trading Windows SETTINGS Allows you to change general settings for Orders Level I and II data and Time amp Sales Refer to the Trading Window Settings topic for details about this important feature 72 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Hot Keys gt Number Pad allows you to assign either Symbols or Number Pad Quantities to the keys on your keyboard number pad Number Pad V Enable Number Pad Hot Keys Use for Symbol Load C Use for Quantity A H A w E Oo o o 1famzn 2 fescol 3f o ooo Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to client
100. r within the same Extended Hours session as long as the status of your order is open Unexecuted Trades Unexecuted orders do not carry over into the next Standard or Extended Hours Trading Session Any open orders will be automatically canceled at the end of the current Pre Market or After Hours session Unexecuted Direct Access orders will not carry over to the next day If a Direct Access order is not executed it will automatically be canceled at the time the ECN to which you routed your order closes Direct Access orders that are not auto canceled will be outed at the time the venue to which you routed your order closes Direct Access orders that are not auto canceled will be outed at the time the venue to which you routed your order closes Conditional Orders Conditional orders are triggered by Alerts with pre defined variables you choose and are only available during the Standard Market Session Alerts are not available for use during Extended Hours Risks of Extended Hours Trading Extended Hours Trading Sessions may not be suitable for all investors since they pose certain risks including but not limited to lower liquidity changing prices news announcements higher volatility and wider spreads For more information see the StreetSmart Pro Disclosures and Agreement Extended Hours Trading Sessions do not take place on official Exchange holidays or when the Exchanges close early Schwab reserves the right to change or mod
101. ral ways to change the share size e Press the Up Down arrow keys to increase or decrease by 1 contract Press the Shift Up Down keys on the keyboard to increase or decrease in 10 contract increments e Tab to or click in the contract size field and type in a new contract size Dollar sign This button allows you to base the number of contracts you place your order for on the amount of money you want to spend on the trade EXAMPLE You have 10 000 to spend on a option that is trading at 5 on the inside ask so you click on the button type 10000 click OK and the contract size field will fill in with 2000 NOTE Commissions are not included in this calculation IM Close Shows yesterday s close price for the option In to ooo Shows the lowest price the option reached today 110 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading O Spread Spread shows the difference between the inside bid and ask prices Expiration Month Shows the month and year that the selected option will expire Strike Price The available strike prices for the selected Expiration Month are listed here Click on the arrow to scroll through the list and select the strike price you desire The Level II display will change to show the details of the option at that strike price V Action Buttons Sell to Close Click this button to sell long call or put options Buy to Open Click this button t
102. rder is correct CBOE Order xj Order You would like to Sell 100 shares to Close of MSFT and Buy 1 calls to Close of MSQ EK 25 14 net credit Day for account 00000000 Do Not Place Order Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC 136 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Extended Hours Trading EXTENDED HOURS TRADING Extended Hours Trading is made possible by computerized order matching systems known as ECNs or Electronic Communications Networks Generally Schwab routes all Extended Hours orders to the Archipelago Exchange The Schwab Pre Market After Hours order routes are available to you if you wish to ro
103. read Currently XYZ trades at 25 share The investor employs the spread strategy selling one in the money put Strike 30 for 6 00 share and buying one out of 130 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading the money put Strike 20 00 for 1 00 share Using this strategy the investor receives a cash credit of the difference between the premiums received and the premiums paid 6 1 5 or 500 and this is the maximum profit the investor can earn If the stock rises to 30 00 share the long and short put positions expire worthless and the investor keeps the net premium received The maximum loss is the difference between the option strikes less the call premium received 30 20 5 5 or 500 see above The breakeven price of 25 is calculated by subtracting the net credit of the spread from the strike price of the short option Vertical Credit Spread Gain Loss at Expiration _ i k z G a wn z l lt 16 18 20 22 24 26 28 30 32 STOCK PRICE in dollars Bear Vertical Put Spreads The Bear Put Spread may allow an investor to profit from downward movements in the underlying security It uses exactly the opposite structure of the Bull Vertical Put Spread and requires the investor to buy a high strike put and sell a low strike put with a lower premium The sale of the less expensive out of the money put will partly offset the cost of pur
104. rouped with other odd lots to create round lots before being executed e Hours Marketable limit orders and market orders may be entered into SuperMontage during the normal market hours of 9 30 a m to 4 00 p m ET SuperMontage is not operational for after hours trading Order Routing Order Types Description Z e Matched against existing orders on the NASDAQ Single Book If no match found will post to the book Market o e Order is sent at the inside bid or ask Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 99 StreetSmart Pro User Manual Time In Force Description Day Orders may be sent starting at 9 30 A M and will expire at 4 00 P M ET Other SuperMontage Features NASDAQ Single Book NASDAQ has integrated SuperMontage INET and BRUT branded market data facilities into a Single Book While the integration does not impact the existing order routing venues and order types the migration results in Level II data display changes within StreetSmart Pro The software consolidates SIZE BRUT and INET quotes into one INET quote at each tier Visit the NASDAQTrader com for more information on the NASDAQ Systems Integration AUTO CANCEL SETTINGS Most Direct Access orders while designated as day orders are only active in the market place for up to 3 minutes While each route has its own rule regarding how long an order r
105. rs the order is activated when the offer is at or below the stop price On buy stop orders the order is activated when the bid is at or above the stop price Once the order is activated you are guaranteed execution but there is no guarantee of the execution price Stop Limit Similar to a stop order in that a stop price will activate the order However once activated the stop limit order becomes a limit order and can only be executed at the limit price specified by you or at a better price Thus you are 106 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading not guaranteed an execution with a stop limit order DAY Day Order Will cancel at the end of the day Fill or Kill Requests an immediate fill for the entire number of contracts similar to an All Or None If the entire number of contracts is not available the order will be immediately cancelled Immediate or Cancel Requests an immediate fill for any number of contracts that may be available with the possibility of a partial fill Any remaining contracts that are unfilled will be cancelled Good Til Cancel Order will remain live until it fills is rejected or is canceled OPTION TAB SETTINGS Options tab settings can be accessed through the Settings menu of the Trading window or by right clicking on an option symbol In both cases you must have the Options tab open to access these settings RIGHT CLICK
106. s 1 Check Enable Number Pad Hot Keys 2 Decide whether to use the number pad keys for Symbols or Quantities 3 If you select Use for Symbol Load enter the full stock symbol in the fields at the bottom of the window EXAMPLE If you enter WXYZ in the 7 field when you are in the Trading window and press 7 in your number pad WXYZ will load in the Trading window 4 If you select Use for Quantity you can set up different quantities depending on whether you re in the Stocks or Options tab Select the type of security from the drop down list and enter the quantity you wish to assign to each key in the fields at the bottom of the window 5 Another alternative when using the number pad keys for quantities is to Aggregate Quantity Increments EXAMPLE If you have Number Pad Key 1 set to 100 and Number Pad Key 2 set to 500 you could set the share size to 700 by pressing 1 and then 2 To reduce by the quantity assigned press Ctrl the Number Pad Key assignment by which you wish to reduce your quantity Press the divide symbol on the number pad to set the quantity back to zero Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 73 StreetSmart Pro User Manual 6 Click OK to save your changes 74 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Hot Keys gt Symbol Aliases can be used to assign letters or a Symbol Aliases combination o
107. s Stocks Options Adv Opt MZ v T Change 0 33 0 72 Volume 3 077 800 Last 4628 Open 4612 Hi 4690 Ratio 21x16 f Level I Quotes fal 1000 H s Iciose 4595 Lo 4586 Spread 001 L 46 31 Hf Smarte x 7 SpecCond Sell Buy a Limit pay im Sell All Short Save TREENIN 46 31 46 32 46 31 Level II and Time amp Sales Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients NOTE Level II data is available to you for a fee if you wish to subscribe to the service However the fee may be waived if you meet certain eligibility requirements For additional information please contact your Schwab Active Trader Team The Options Tab 54 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading The Options Tab allows you to view options chains and if approved for options trading place options trades The Level II Options Tab You will need to turn on the Level II Options tab by clicking Settings gt General gt L2 Data and checking the Show L2 Option Data selection The Level II Options Tab has 4 segments 1 AYBT Amazon com Inc DOR Fie Settings Stocks Options L2Opt Adv Opt AMZN 46 45 v Change 0
108. s list for rapid reloading Tick Shows whether the stock is on a downtick or uptick Color Direction coded red downtick green uptick black stock can be shorted on a downtick Change Shows the change in price from close TIP This can be changed to reflect the change from the opening price by checking Calculate Change from Open in the Settings gt General menu of the Trading window Change Shows the percent change from close o 0 TIP This can be changed to reflect the change from the opening price by checking Calculate Change from Open in the Settings gt General menu of the Trading window S volume Shows cumulative volume for the day Last Shows the last price at which the stock traded Red indicates the price was down from the previous sale and green means the price was up from the previous sale r open Shows the price at which the stock opened today Br Shows the highest price the stock has reached today Shows the number of participants posting at the inside bid price x the number of participants posting at the inside ask price This can be set to show instead the number of shares available at the inside bid and ask by checking Compute Ratio by Quantities in the Settings gt General menu of the Trading window L close Shows yesterdays close price Shows the lowest price the stock has reached today Aaea Spread shows the difference between the inside bid and ask prices Order En
109. share 1 contract 600 Using this strategy the investor pays a cash debit of 6 00 This is the maximum loss the investor can incur If the stock decreases to 19 00 share the long call will expire worthless and the investor loses the 6 premium The maximum gain if the stock price is higher than the strike is the difference between the closing price and the call strike less the call premium spent If the stock is trading at 30 then 30 20 6 4 profit The break even point for the strategy occurs when the price of XYZ is at 26 Long Call Gain Loss at Expiration A amp 3 z 5 gt 0 S zZ 5 lt oO 5 10 15 20 25 30 35 STOCK PRICE in dollars Short Call The Short Straight Call may allow an investor to profit from downward movements in the underlying security or index It uses the exact opposite structure as the Long Call If the security or index falls in value the investor can generally profit The maximum profit is the premium received by selling the option If the security rises in value the maximum loss is unlimited For use when investor anticipates e Declining market security depreciation Financial Characteristics e Maximum Loss Unlimited e Maximum Gain Credit received by selling the call option e Break Even Strike price of the option plus the credit received for the sold option Objective e Speculative gain EXAMPLE Short Straight Call Currently XYZ trades at 25 share The investor believ
110. short straddle selling one 25 call for 2 00 and selling one 25 put for 2 00 Since each contract represents 100 shares the investor receives a cash credit of 400 00 To break even or make a profit the stock must trade between 21 00 share and 29 00 share If the stock increases or decreases past these prices the investors suffers a loss The maximum profit the investor can earn 4 is if the stock closes at exactly 25 at expiration At that price the investor would retain the entire premium Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 125 StreetSmart Pro User Manual Short Straddle Gain Loss at Expiration a i 3 a lt 20 22 STOCK PRICE in dollars Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long options investors may lose 100 of funds invested In the money long puts need to be closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions P
111. t copy Member SIPC Straddles Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 123 StreetSmart Pro User Manual A strategy consisting of the purchase or sale of both a call and put option with the same expiration date and strike price A long straddle offers an opportunity to make money when a stock or index moves substantially A short straddle offers an opportunity to make money when a stock or index stays within a narrow range Long straddles Long straddles may allow an investor to profit from dramatic price movements in a specific security or index An investor might employ a long straddle when he expects a surprising movement by the security but is unsure of the direction Long straddles involve simultaneously buying calls and puts with identical strike prices and expiration dates typically at the money The investor may benefit from either a large increase or a large decrease in the price of the stock However the stock must move up or down further than the total premium paid for the investor to profit at expiration Prior to expiration if the underlying security moves substantially up or down the investor may choose to realize a profit by selling the in the money option before its expiration date In this case while the in the money option will have been losing time value since it was purchased the losses in time premium are offset by the gains in intrinsic value The investor may conti
112. t level 3 The Price Level scheme can also be inverted to view the Level II data in black over a red background To invert check the Inverted box with the mouse 4 Click on Color Rotation to keep colors with the price levels as they move TRADING WINDOW SETTINGS By clicking on Settings gt General the Trading Window Settings will open and changes can be made NOTES Global Settings Bold check boxes are global changes for all open Trading windows Changing a setting marked with a bold check box affects all Trading windows simultaneously Non Global Settings Non bold check boxes are local and only affect the Trading window in which you are working ORDERS EXECUTION SETTINGS Order Verification If checked requires you to verify orders before they are sent allowing you to reduce the risk of sending an incorrect order NOTE For important information about this subject go to Order Verification View Warnings StreetSmart Pro automatically provides Order Verification and Warning amp Informational Messages related to your order The default setting is active NOTE For important information about this subject go to Order Warning Messages Default INET Orders to IOC If checked every INET order you send will automatically be sent as an Immediate or Cancel order which requests an immediate fill for any number of shares that may be available with the possibility of a partial fill
113. tact your Schwab Active Trader Team Note that NASDAQ quotes and Level II ECN quotes are in upper case and ECN book quotes when the book is turned on are in lower case Other non NASDAQ quotes are noted with an asterisk Level II Tips e Check Show Equity Quote Volumne in 100s in the Settings gt General gt L2 Data window of your Trading window to display available shares at 1 100th of their real value e g 10 means the participant has 1000 shares available If there are parentheses around the number it is for fewer than 100 shares and is the actual number of shares they are making available For example If you see 75 the participant has exactly 75 shares to buy or sell SIZE ID Market Makers and ECNs can post to Level II anonymously by sending Non Attributed orders to the market Non Attributed orders are displayed in the Level II montage with the SIZE identifier For each price level all non attributed orders are aggregated 62 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading under the SIZE identifier e If you have Directional Quote Change Arrow checked in your Trading window settings you may see some small up and down arrows in the Level II area of the Trading window What these arrows indicate is the direction that market participant just moved in relation to the inside price For instance if Market Maker GSCO is on the bid at 65 25 but backs off to 65 125
114. tcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long options investors may lose 100 of funds invested In the money long puts need to be closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 121 StreetSmart Pro User Manual strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Rollouts A Rollout also known as a Roll Forward is comprised of an order to close out of an option position with a near term expiration date and an order to open a new position in the same type Call or Put of option with the same underlying and with the same or different strike price and a longer term expiration date Also known as a Rollup or Rolldown when the strike price is different Commissions taxes and transaction costs are not included in any of
115. ted as long as the investor does not exercise it which will result in a short stock position for their account There is an additional risk associated with the expiration weekend If the long put is exercised the investor ends up with a short position in the stock Good news during the weekend could force even greater losses on the investor before he can exit the short equity position The maximum profit or gain is realized if the stock prices goes to zero EXAMPLE Long Put Currently XYZ trades at 25 share The investor employs the strategy of buying one in the money put strike 30 for 6 00 share 1 contract 600 Using this strategy the investor pays a cash debit of 6 00 This is the maximum loss the investor can incur If the stock increases to 31 00 share the long put will expire worthless and the investor loses the 6 premium The maximum gain if the stock price is lower than the strike is the difference between the put strike and the closing price less the premium debit spent in buying the put If the stock is trading at 19 then 30 19 6 5 profit The break even point for the strategy occurs when the price of XYZ is at 24 Long Puts Gain Loss at Expiration A S E ua z L no Z lt g 15 20 25 STOCK PRICE in dollars Short Put The Short Put generally will allow an investor to profit from upward movements in the underlying security or index It uses the exact opposite structure as the Long P
116. the time the order was submitted by the number of points or the percent you specified in the Trailing Amount field Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 87 StreetSmart Pro User Manual EXAMPLE In the image below we have a trailing stop of 5 set T 5 SmartEx T C pts Z TrailingS vi DAY v If at any point the price retraces the specified Trailing Amount a SmartEx Market order will be routed for the quantity you specified If you place an order to close a position using a trailing stop set to 5 if the bid price increases 9 and then drops 5 the order will be sent at that time The change from the time that the trailing stop was placed would effectively be 4 above where you placed the order Defaults to the order type you selected in the Trading window either Market Limit or Trailing Stop Share Quantity Can be changed using the up down arrows however only whole share amounts can be accepted in the quantity field Limit Price Can be changed via manual input or by using the arrows can be up to four decimal places only Stop Price e Can only be entered if Stop or Stop Limit order is chosen e Can be up to four decimal places only Trailing Amount A SmartEx Trailing Stop Buy Sell Short order is a stop order whose stop price will trail either the inside ask if buying or inside bid if selling shorting at the time the order was submitted by the number of po
117. these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long options investors may lose 100 of funds invested In the money long puts need to be closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Collars A collar allows an investor to help hedge a long short underlying security position by buying selling a put with a strike price beneath the current stock price and selling buying a call with a strike above it Both options have the same expiration date The user accepts a cap on his upside downside gains for a floor on his downside upside losses For use when investor anticipates e Volatile market conditions e Any missed opportunities are perceived to be worth the risk mitigation Financial Characteristics e M
118. trative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 109 StreetSmart Pro User Manual Last Trade Price Shows the last price at which the underlying stock index traded Stock Symbol Shows the underlying stock symbol To enter a new stock click in the field type the new stock symbol and press Enter on your keyboard Click on the down arrow to show recently loaded stocks Select a stock from this list for rapid reloading c Change Shows the change in price from close for the option Change 0 Shows the percent change in price from close for the option E volume Shows the option s cumulative volume for the day Last Shows the last price at which the option traded Red indicates a trade below the prior trade and green indicates a trade above the prior trade 1G open sd Shows the price of the option upon market open Shows the highest price the option has reached today Open Interest Shows the number of contracts still open meaning they have not been exercised closed out or allowed to expire as of the close from the previous day Clicking on this button will open and close the execution portion of the Options Level II tab Contract Size There are seve
119. try i Order There are several ways to change the order quantity Quantity e Press the Up Down arrow keys to increase or decrease in increments of 500 Press the Left Right arrow keys to increase or decrease in increments of 100 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 59 StreetSmart Pro User Manual e Press the Shift Up Down keys on the keyboard to increase or decrease in increments of 10 e Press the Shift Left Right keys on the keyboard to increase or decrease in increments of 1 e Inthe Quantity field and type in a new share or contract size e Tab to or click in the quantity field and press a number on the keypad to enter that quantity times 100 for instance pressing 5 on your keypad will enter 500 Calculates the number of shares for your order from the dollar Compute amount you enter Shares For instance if you have 10 000 to spend on a stock that is from trading at 5 on the inside ask you would click the button Quantity type 10000 click OK and the share size field will fill in with 2000 NOTE Commissions are not included in this calculation This is where you should enter the price at which you wish to place an order if you have selected a Limit order type There are multiple methods for entering or adjusting your price e Click on the arrows next to the price field to scroll the price up and down To adjust the increments by which the
120. ttings gt General menu To expand this view up to the last 1000 trades right click in the T amp S window and select Request Expanded T amp S Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 67 StreetSmart Pro User Manual TIPS Maximizing Level II Depth You can maximize the depth of Level II data by hiding the Order Entry panel Just click the Open Close Order Entry Panel arrow M Last 40 10 1000 H L 4011 f You can also select Hide Menu from the right click menu to further maximize the depth of the quotes display Viewing More Level II Quotes To view more quotes right click in the Bids Asks or Time amp Sales area of Level II and select Show Scroll Bar This will allow you to scroll down and see the quotes that do not fit in the screen View Entire ECN Books Go to Settings gt General gt L2 Data tab and check those boxes under Display Bid Ask Quotes When the entire book is displayed the ECN ID and quote data will appear in red lower case text ABOUT THE ACTION BUTTONS e Once the Order Entry fields are set up to reflect the attributes you want choose your action Sell Short Buy or Save e If the Spec Cond box has been checked when you click on an Action button an additional Order Entry window will pop up allowing you to specify further details about your order e If the Spec Cond box has not been checked when you click on an Action button the order verificat
121. uld pocket the entire 6 The break even point for the strategy occurs when the price of XYZ is at 24 Short Puts Gain Loss at Expiration g k e 5 5 0 s Z 5 lt oO 15 20 25 30 35 40 45 STOCK PRICE in dollars Commissions taxes and transaction costs are not included in any of these strategy discussions but can affect final outcome and should be considered Please contact a tax advisor to discuss the tax implications of these strategies Many of the strategies described herein require the use of a margin account With long options investors may lose 100 of funds invested In the money long puts need to be closed out prior to expiration since exercising them could create short stock positions Options carry a high level of risk and are not suitable for all investors Certain requirements must be met to trade options through Schwab Multiple leg options strategies will involve multiple commissions Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction Call your local Schwab office or write Charles Schwab amp Co Inc 101 Montgomery Street San Francisco CA 94104 for a current copy Member SIPC Buy Writes amp Unwinds Of the kinds of multi legged orders that can be placed as a package using this feature buy writes and unwinds are unique in that one leg of the trade is for an option the other is for an
122. ut If the security rises in value the investor can generally profit The maximum the investor can profit is the premium received by selling the option If the security declines in value the maximum the investor can lose is the strike price less the credit received for selling the put For use when investor anticipates e Increasing market security appreciation Financial Characteristics e Maximum Loss Strike Price less credit received from sale of option e Maximum Gain Credit received by selling the put option e Break Even Strike Price of the option less the credit received for the sold option Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 117 StreetSmart Pro User Manual Objective e Speculative gain EXAMPLE Short Straight Put Currently XYZ trades at 25 share The investor believes the stock will rise and wants to benefit from the upward movement The investor shorts a Straight Put option strike 30 for 6 00 share 1 contract 100 The maximum loss is the difference between the strike of the option and the premium received through the sale of the put 30 6 24 If the stock closes at 19 on expiration there would be a 5 loss 30 19 6 5 loss The maximum profit an investor can receive is the credit received when selling the option For example if the same XYZ 30 strike put option sold for 6 and the stock closed over 30 the option would expire worthless and the investor co
123. ute your extended hours orders in this way With Direct Access you can send orders for NASDAQ equities direct to ECNs Unlike orders sent to Schwab for execution direct access orders sent during the extended hours can remain on the ECN s book for all sessions if you have changed your ECN Auto Timeout setting to zero This means they will not be outed or canceled at the end of the Pre Market session nor at the end of the standard trading session ECNs have one trading session which lasts from the time they open for business until their designated closing time NOTE Listed securities participating in the extended hours sessions and all short sales will continue to be routed using Schwab s Extended Hours offerings EXTENDED HOURS TRADING VIA SMARTEX Extended Hours Trading is made possible by computerized order matching systems known as ECNs or Electronic Communications Networks Trading Sessions Schwab s Extended Hours Trading offering has two components the Pre Market and the After Hours sessions Both sessions are independent from the Standard Market Session e Pre Market Session Orders can be entered from 8 05 p m on the previous trading day to 9 15 a m ET but trades are not eligible for execution until the session officially opens for trading at 8 00 a m ET e After Hours Session Orders can be entered from 4 05 p m to 8 00 p m ET but trades are not eligible for execution until the session officially opens for trading at 4
124. ws the depth of all bids and asks in a symbol The left column shows the Bids the middle column displays the Asks Each line shows e The four letter Market Maker ECN or Exchange ID e Their best Bid or Ask price while this is their best price it may not reflect their entire book e The Market Maker will always be displayed in capital letters while the ECNs will only display in capital letters if only their best Bid Ask quote is displayed Other non NASDAQ quotes are noted with an asterisk e To change the display go to Settings gt General gt L2 Data and click all available ECN books or exchanges NOTE The availability of book quotes from some ECNs is sporadic If checked the software will display these quotes when available e Number of shares they are making available at that price e Shares available are shown in actual amounts Level II Tips e Check Show Equity Quote Volume in 100s in the Settings gt General gt L2 Data window of your Trading window to display available shares at 1 100th of their real value e g 10 means the participant has 1000 shares available If there 66 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading are parentheses around the number it is for fewer than 100 shares and is the actual number of shares they are making available For example If you see 75 the participant has exactly 75 shares to buy or sell
125. xempt This action acknowledges that the intent is to sell a position instead of short a stock and is therefore exempt from the up tick rule Please see Up Tick rule for more information MESSAGES WINDOW Messages By clicking View gt Messages in the Account Detail menu you can view streaming order status in the Messages window for the current day only If you log off and back on multiple times during the day all messages for the previous session s will display in gray The Messages Window provides useful information about your software settings order status information alert messages and market session information If you make any changes to your software settings these changes will also be noted in the Messages Window The streaming data displayed includes e New Order Accepted e Orders Filled e Nothing Done Out e Alerts amp Conditional Order Events e Change Order e Cancel Accepted 142 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Messages 16 26 50 116 26 50 16 26 42 16 24 37 16 24 37 IEOR ae Equity Market is now Closed 15 59 00 Equity Market Closing in 1 Minute 15 55 00 Eguity Market Closing in 5 Minutes ero 00000000 Alert Server is running As the Messages Window provides you with real time information not always available in other parts of the application we recommend leaving your Messages Window open while logged on TIP Printing Data Fr
126. y fields are set up to reflect the attributes you want choose your action Sell Short Buy or Save If Order Verification is enabled in the Trading window Settings gt General window you will be asked to verify the details of your order before it is sent Click Place Order to submit the order or Do Not Place Order to cancel your action PARTIAL FILLS SmartEx An order routed through SmartEx may have partial fills Schwab will continue attempting to fill the order until it s completed Direct If you For a Day Limit order there is only one commission charge and generally one order number assigned unless you change your order regardless of the number of fills it takes to complete the order Good Till Cancelled orders have the potential for multiple commissions if the order takes more than one day to complete One commission will be charged for each day s combined fills based on execution prices and quantities Access have Direct Access enabled for your account it is your responsibility to make sure your order is filled to your satisfaction Partially filled orders require a decision on your part to either enter an additional order for the remaining shares or not Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 83 StreetSmart Pro User Manual For Direct Access orders there is always the potential that your order will not completely fill As the default settings have a maximum value
127. you to customize your order with special conditions when you submit or save an order NOTE Using order qualifiers can delay the execution of your order or reduce the likelihood of it being filled TIP For faster submission of Day Market and Day Limit Orders you can uncheck the Spec Cond box and submit those orders directly from the Trading window StreetSmart Pro has been designed to prevent you from sending variables that will not be accepted in the marketplace Execute SmartEx Order 00000000 AMZN Buy Reinvest Dividends Order Type z Time in Force Day Quantity 100 k Special Conditions AGN Limit Price 40 11 rH NE Stop Price F Min Gt 200 Save Order Cancel Stock symbols and price and volume data shown here and in the software are for illustrative purposes only Charles Schwab amp Co its parent or affiliates and or its employees and or directors may have positions in securities referenced herein and may as principal or agent buy from or sell to clients SPECIAL CONDITIONS STATUS ACTION _ CHECKBOX FIELDS Account Number Displayed in the title bar Security and Action Displayed and cannot be edited Order Type Use this drop down menu to select your order type e Limit Market Stop Stop Limit Trailing Stop A SmartEx Trailing Stop Buy Sell Short order is a stop order whose stop price will trail either the inside ask if buying or inside bid if selling shorting at
128. ypes n Traded Eastern Time ARCA NYSE Arca Limit Day IOC NNM Market Max Floor Listed OTC Market Peg Diff Peg Discretion Primary Peg BTRD Bloomberg Day IOC NNM Listed OTC INET formerly ISLD INCA Limit Day IOC NNM Listed Limit Max Floor Invisible Peg Diff BRUT ECN i m Limit Day IOC NNM NASDAQ Stock Limit Listed OTC Market Inc m Invisible Market 90 Copyright Charles Schwab amp Co Inc 2006 All rights reserved 0106 5667 Trading Market Minimum Peg Quantity Primary ONTD OnTrade NNM OTC SuperMontage Market Limit NNM OTC NASDAQ Makers Market and m Participati ng ECNs DIRECT ACCESS ELIGIBILITY Direct Access order routing is available to eligible clients who want more control over the routing of their orders Direct Access trading entails certain risks and responsibilities As a result we have established the special eligibility requirements for Direct Access Trading These eligibility requirements are posted on the StreetSmart Pro Center of Schwab com in the section called Trade Routing PLACING A DIRECT ACCESS ORDER Placing a Direct Access order is similar to placing a SmartEx order except you may use one of a variety of ECNs or NASDAQ SuperMontage 1 Enter the symbol in the symbol field and press Enter on the keyboard 2 The symbol field background should be white If it s blue the window has not

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STREETSMART PRO® TRADING