Well the biggest reason alot of retail focused brokers dont' let you buy things yhou don't have the money to buy is what happens if you hold to expiry?
If its out of the money no big deal, you lose your money, what happens if its in the money?
Do they force you to exercise? If so then you owe them money that isn't in your account
Do they sell it for you? If so at what time? what if there is no offsetting bid for your option? What if they sell it and you had planned on exercising?
This just opens the brokerage up to all sorts of law suits eeven if their terms of service clearly aly out what they'll do.
There just is not always a cut and dry best option for what to do with options before they expire.
What happens if they sell an ITM option but it expires out of the money?
Forcing the user to have money to exercise their options makes it clear and easy, no guessing on when to sell the option, no worrying there wont' be a market for the option, etc.
as long as they don't let my ITM option expire without doing anything, I don't think I would complain. but I see why a retail broker might not want to open this can of worms now. thanks for the breakdown.
If its out of the money no big deal, you lose your money, what happens if its in the money?
Do they force you to exercise? If so then you owe them money that isn't in your account
Do they sell it for you? If so at what time? what if there is no offsetting bid for your option? What if they sell it and you had planned on exercising?
This just opens the brokerage up to all sorts of law suits eeven if their terms of service clearly aly out what they'll do.
There just is not always a cut and dry best option for what to do with options before they expire.
What happens if they sell an ITM option but it expires out of the money?
Forcing the user to have money to exercise their options makes it clear and easy, no guessing on when to sell the option, no worrying there wont' be a market for the option, etc.