1. What counts as a day trade under PDT?
- A day trade occurs when you buy first, then sell the same position on the same day.
- Selling first and buying later does not count as a day trade.
- Buying and selling the same option contract (same strike, expiration, and type) on the same day qualifies as a day trade.
- Buying an option that expires on the same day as the purchase counts as a day-trade temporarily. The day-trade count remains if you sell it. If you let it expire or exercise it, then it is not counted as a day trade.
2. Do assignments or exercises count as day trades?
Assignments or exercises may count depending on the situation:
- Buying stock and selling a call: Same-day assignment = day trade.
- Buying stock and buying a put: Same-day exercise = day trade.
- Buying stock and selling a put: Same-day assignment = not a day trade (forces share purchase).
- Buying stock and buying a call: Same-day exercise = not a day trade (allows share purchase).
3. How can I avoid unintended day trades?
- Avoid closing positions on the same day they’re opened.
- Monitor assignments and exercises that could trigger day trades.
- Limit trades to avoid exceeding 4 day trades in 5 business days, which flags you as a Pattern Day Trader.
4. What happens if I’m flagged as a Pattern Day Trader?
You’ll need a minimum Equity (non-Crypto) balance of $25,000 (balance of last market close) to continue day trading. Falling below this locks your account to closing trades only. If you have less than $25k (at last market close) in your non-crypto balance, you can only do 3 day trades in a 5 rolling business day period.
Quick Tip:
Watch your trades closely and plan ahead to avoid unintentional violations of PDT rules.