Aug
30
2022
Guide to Writing Put Options

Guide to Writing Put Options

By | Growing Wealth, invest, Investing | Comments Off on Guide to Writing Put Options

Puts, or put options, are contracts between a buyer – known as the holder of an option – and a seller – known as the writer of an option – that gives the buyer the right to sell an asset, like a stock or exchange-traded fund (ETF), at a specific price within a specified time period. The seller of the put option is obligated to buy the asset at the strike price if the buyer exercises their option to sell.

Writing a put option is also known as selling a put option. When you sell a put option, you agree to buy the underlying asset at a specified price if the option buyer, also known as the option holder, exercises their right to sell the asset. The premium you receive for writing the put option is your maximum possible profit.

Generally, traders who buy put options have a bearish view of a security, meaning they expect the underlying asset’s price to decline. In contrast, the put option writer has a neutral to bullish outlook of a security. The put writer should be willing to take the risk of having to buy the asset if it falls below the strike price in exchange for the premium paid by the put option holder.

Writing put options is just one of numerous trading strategies investors use to build wealth, speculate, or hedge positions. While there is potential to generate income by writing put options, it can also be a risky way to enhance a portfolio’s return. Only investors with the knowledge of how to write put options and risk tolerance to take on this strategy should do so.

Writing Put Options

When writing a put option contract, the seller will initiate a trade order known as sell to open.

As mentioned above, the put option writer is selling a contract that gives the holder the right to sell a security at a strike price within a specified time frame. The put option writer will receive a premium from the holder for selling this option. If the price of the security falls below the strike price before the expiration date, the writer may be obligated to buy the security from the holder at the strike price.

There are two main reasons to write a put option contract: to earn income from the premium or to hedge a position.

A naked, or “uncovered,” put option is an option that is issued and sold without the writer setting aside any cash to meet the obligation of the option when it reaches expiration. This increases the writer’s risk.

💡 Recommended: What Are Naked Options? Risks and Rewards, Explained

Maximum Profit/Loss

The most a put option writer can profit from selling the option is the premium received at the start of the trade. Many traders take advantage of this profit as a way to generate regular income by writing put options for assets that they expect will not fall below the strike price.

However, this strategy can be risky because there can be significant losses if the asset’s price falls below the strike price. For example, if a stock’s price plummets because a company announces bankruptcy, the put option writer may be obligated to buy the stock when it’s trading near $0. The maximum loss will be equal to the strike price minus the premium.

Breakeven

The breakeven point for a put option writer can be calculated by subtracting the premium from the strike price. The breakeven point is the market price where the option writer comes away even, not making a profit or experiencing a loss (not including trading commissions and fees).

Writing Puts for Income

There are many options trading strategies. As noted above, many traders will write put options to generate income when they have a neutral to bullish outlook on a specific security. Because the writer of a put option receives a premium for opening the contract, they will benefit from that guaranteed payment if the put expires unexercised or if the writer closes out their position by buying back the same put option.

For example, if you believe an asset’s price will stay above a put option’s strike price, you can write a put option to take advantage of steady to rising prices on the underlying security. By keeping the option premium, you effectively add a stream of income into your trading account, as long as the underlying asset’s price moves in your favor.

However, with this strategy, you face the risk of having to buy the underlying asset from the option holder if the price falls below the strike price before the expiration date.

💡 Recommended: How to Sell Options for Premium

Put Writing Example

Let’s say you are neutral to bullish on shares of XYZ stock, which trade at $70 per share. You execute a sell to open order on a put option expiring in three months at a strike price of $60. The premium for this put option is $5; since each option contract is for 100 shares, you collect $500 in income.

If you wrote the put option contract for income, you’re hoping the price of XYZ stock will stay above $60 through the expiration date in three months, so the option holder does not exercise the option and requires you to buy XYZ. In this ideal scenario, your maximum profit will be the $500 premium you received for selling the put option.

At the very least, you hope the stock does not fall below $55, or the breakeven point ($60 strike price minus the $5 premium). At $55, you may be obligated to buy 100 shares at the $60 strike price:

$5,500 market value – $6,000 price paid + $500 premium earned = $0 return

If XYZ stock falls to $50, the put option holder will likely exercise the option to sell the stock. In this scenario, you will be obligated to buy the stock XYZ at the $60 strike price and incur a $500 loss in this trade:

$5,000 market value – $6,000 price paid + $500 premium earned = -$500 return

However, the further the price of XYZ falls, your potential loss risk increases. In the worst-case scenario where the stock falls to $0, your maximum loss would be $5,500:

$0 market value – $6,000 price paid + $500 premium earned = -$5,500 return

Put Option Exit Strategy

In the example above, it is assumed that the option is exercised or expires worthless. However, a put option writer can also exit a trade in order to profit or mitigate losses prior to the contract’s expiration.

A put writer can exit their position anytime using a trade order known as buy to close. In this scenario, the writer of the initial put option will buy back a put option to close out a position, either to lock in a profit or prevent further losses.

Using the example above, say that after two months, shares of XYZ have increased from $70 to $85. The value put contract you sold, which still has one more month until expiration and a $60 strike price, has collapsed to $1 because of a share price rise and perhaps a drop in expected volatility. Rather than wait for expiration, you decide to buy to close your put position, buying back the put contract at $1 premium, for a total of $100 ($1 premium x 100 shares). You are no longer obligated to buy shares of XYZ in the event the stock drops below $60 during the next month, and you lock in a profit of $400:

$500 premium earned to sell to open – $100 premium paid to buy to close = $400 return

A buy to close strategy can also be used to mitigate substantial losses. For example, if stock XYZ’s price starts dropping, the value of puts with a $60 strike price and a similar expiration date will rise. Rather than wait for expiration and be obligated to buy shares of a stock you don’t want, potentially losing up to $5,500, you may exit the position at any time. If option premiums for this trade are now $8, you can pay $800 ($8 premium x 100 shares) to buy to close the trade. This will result in a loss of $300, a potentially more manageable loss than the worst-case scenario:

$500 premium earned to sell to open – $800 premium paid to buy to close = -$300 return

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the OCC Options Disclosure Document.

The Takeaway

Writing a put option is an options strategy in which you are neutral to bullish on the underlying asset. Potential profit is limited to the premium collected at the start of the trade. The maximum loss can be substantial, however. Finally, there is the risk that you will be liable to buy the stock at the option strike price if the holder exercises the option. Because of all these moving parts, writing put options should be left to experienced traders with the tolerance to take on the risk.

Looking to try different investment opportunities? SoFi’s intuitive and approachable options trading platform is a great place to start. You can access educational resources about options for more information and insights. Plus, you have the option of placing trades from either the mobile app or web platform.

Trade options with low fees through SoFi.

FAQ

What happens when you sell a put option?

Selling a put option is the same thing as writing a put option. You profit by collecting a premium for selling the option or when the put options decline in value, which usually happens when the underlying asset price rises. A significant risk of writing a put option is that you might be required to buy shares of the underlying asset at the strike price.

How would you write a put option?

You write a put option by first executing a sell to open order. You collect a premium at the onset of the trade without owning shares of the underlying asset. This strategy can be risky, so it generally requires high-level options trading knowledge.

When would you write a put option?

If a trader believes an asset’s price will stay flat or increase over a period of time, they may choose to write a put option. If the underlying asset’s price increases, the put option’s value will decline as it nears expiration. A profitable outcome occurs when the value of the put option is zero by expiration, or if the put writer buys to close the position before expiration. The put writer will profit by keeping the premium received at the initiation of the trade.

Photo credit: iStock/insta_photos

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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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Aug
22
2022
Getting a Credit Card With No Job: What to Know

Getting a Credit Card With No Job: What to Know

By | Credit | Comments Off on Getting a Credit Card With No Job: What to Know

If you’re currently without a job — either temporarily or permanently — you may be wondering: ‘Do you need a job to get a credit card?’ While the answer will depend on your unique financial situation, know that it is possible to get a credit card with no job.

But even if you can get a credit card with no job, there are potential risks in borrowing money without a steady source of income. Here’s how you can get a credit card with no job, as well as the pros and cons to consider before you do.

Can You Get a Credit Card With No Job?

If you don’t have a full-time or regular job, you may still be able to get approved for a credit card. However, you may need to show other means of being able to pay your credit card obligations due to how credit cards work.

When applying for a credit card, credit card issuers are required to consider your ability to repay your debts when considering whether to approve your application. To determine whether you meet this credit card requirement, they’ll typically look at your income from a job or other sources. If you’re attempting to get a credit card with no job, this could include unemployment benefits, self-employment income, shared household income or retirement income.

What Does the Credit Card Act of 2009 Say?

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (also known as the Credit CARD Act) is the federal law that governs many interactions between credit card issuers and applicants. One thing that the Credit Card Act of 2009 did was prevent credit card companies from issuing new cards to applicants under 21 years of age unless they have an adult cosigner or have proof of income. This makes it more difficult for young adults without a job to get their own credit card.

Guide to Listing Income on Your Credit Card Application

One of the biggest credit card rules is that you should always be completely truthful on your credit card application. If you don’t have a job or income, you should state that rather than inflating or lying about your total income.

If your issuer finds out that your application was not completely accurate, they may close your account. In turn, this could damage your credit.

Types of Income That You Can Report on a Credit Card Application

Now that you know the answer to the question, ‘can you apply for a credit card without a job?’, you’ll need to know how to fill out your application. You can use a variety of different types of income on your credit card application. Here are a few of the most common:

•   Employment income: Money you earn from employment is the most common source of income on credit card applications. This can include money from a seasonal or irregular job.

•   Self-employment income: If you have your own business, you can also include that on a credit card application. This can include money from contract or freelance work.

•   Unemployment benefits: Another potential source of credit card application income is unemployment benefits. If you’re temporarily out of work and receiving unemployment insurance benefits, you can include that on a credit card application.

•   Shared household income: The Credit CARD Act of 2009 states that you can include as income any money that you would reasonably expect to have access to. This could include a spouse’s income or an allowance provided by a family member.

•   Retirement income: Retirement benefits like a pension or Social Security are also considered an acceptable form of income for credit card applications. This also includes distributions from a retirement account.

Guide to Getting a Credit Card With No Job

If you don’t have a job and your other sources of income aren’t enough to get a standard credit card, then you do have a few other options you can consider.

Opt for a Secured Card

One option to consider is applying for a secured credit card. With a secured credit card, you generally make a refundable initial deposit. This deposit then serves as your total credit line. It is generally easier to get approved for secured credit cards than traditional, or unsecured, credit cards.

Become an Authorized User

Another possibility is to become an authorized user on a credit card. When you’re an authorized user on someone else’s account, only the primary account holder is legally and financially responsible for all purchases on the account. And if the primary account holder uses the card responsibly, it can help raise your credit score, even if you’re only an authorized user.

Consider a Cosigner

If you have a trusted friend or family member, you might also look at getting a credit card cosigner. Some credit card companies may not approve you for a new credit card on your own, but they may approve you if you have someone who will co-sign your application.

Keep in mind that a cosigner will be legally and financially on the hook for your purchases, so it may be difficult to find someone willing to cosign for you.

Look Into a Student Credit Card

Many card issuers offer a type of credit card marketed toward students. If you’re a student with a limited credit history and no income, you may stand a better chance of getting approved for a student credit card than a traditional credit card. Plus, these cards may have low fees and offer rewards tailored to students’ typical spending habits.

Pros and Cons of Getting a Credit Card When Unemployed

It is possible to get a credit card if you’re unemployed since you can list unemployment benefits, among other income sources, in your application. While there are certainly upsides to securing a credit card, you should carefully consider the downsides as well before applying for a credit card without a job.

Pros

 Cons
Responsibly using a credit card can help improve your credit score It may be difficult to get approved
Having a credit card makes it easier to make some types of purchases If you are approved, you may not be approved for a very high credit limit
You may earn rewards and/or cash back with your credit card purchases You may have trouble repaying your purchases without a steady source of income

Tips for Using a Credit Card Without a Job

While the answer to whether you have to have a job to get a credit card is technically no, there are some caveats attached to swiping your card without a steady income. Still, just because you don’t have a job doesn’t mean you can’t build your credit in your meantime. Here are some tips to keep in mind to use your credit card wisely:

•   Shop around for a card with a competitive rate: Especially if your financial situation has some uncertainty, you may end up carrying a balance at some points. To avoid paying any more than you need to in interest, make sure to take your time to shop around for the card that offers you the lowest rate.

•   Don’t spend more than you can afford to pay back: Before you use your credit card for any purchases, make sure that you’ll have the money to pay your bill off at the end of the month. If you won’t, you may need to reevaluate your overall spending habits to make sure you don’t fall into debt.

•   Pay each month in full to save on interest: One of the best things that you can do for your overall financial health is to reliably pay your bills in full, each and every month. If you do this, you won’t end up paying interest on your purchases.

•   Set alerts so you don’t miss your monthly payments: If you’re already tight on funds because you’re without a job, the last thing you want to deal with is late fees. Plus, aside from this cost, your credit score will also suffer. To make sure you remember to make payments on-time, consider setting an alert to remind yourself, or even autopay.

The Takeaway

It is possible to get a credit card with no job, but it may not be easy. And many premium or luxury credit cards may not be available to you. Make sure to account for all sources of income on your credit card application. Remember that in addition to income from employment, you can consider other forms of income like self-employment, retirement, or household income. Alternatively, you can consider options like a secured card, a student card or becoming an authorized user on someone else’s account.

If you do have good credit and a reliable source of income, you might consider the SoFi credit card.

FAQ

Can you get a credit card if you have no income?

Yes, it is possible to get a credit card if you have no income, but it may not be easy. Credit card issuers are required to consider your ability to pay your bills before approving you for a card. Keep in mind that you can use more than just money from employment as income. You can also use retirement, self-employment, or shared household income.

Do credit card companies know if you are unemployed?

Credit card companies do not directly know if you are unemployed, but your employment status is usually asked as a question on most credit card applications. However, if you already have a credit card account and then later become unemployed, that information is not generally shared directly with your credit card company.

Can you get a credit card when you’re on unemployment benefits?

Yes, it is possible to get a credit card if you’re on unemployment benefits. Credit card companies are legally required to consider your ability to pay all of your bills when deciding whether to approve you for a card. But this consideration can include income from many sources, not just income from employment.

What is the minimum income required to get a credit card?

There is not a set minimum income credit card requirement. Instead, different credit card issuers will consider your overall financial situation (including income) when deciding whether to approve you for one of their cards. While it is possible to get a credit card with no or low income, you may not be able to get approved for all credit cards.

Does unemployment affect credit?

If you lose your job and start receiving unemployment benefits, it won’t directly affect any credit cards that you already have. However, if your job loss starts to impact your ability to make your payments on-time, your credit card issuer may charge fees and/or raise your interest rate.

Photo credit: iStock/damircudic


1See Rewards Details at SoFi.com/card/rewards.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .


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Aug
05
2022
How Do Credit Card Miles Work? Earning, Redeeming, and More

How Do Credit Card Miles Work? Earning, Redeeming, and More

By | Credit, Financial Independence | Comments Off on How Do Credit Card Miles Work? Earning, Redeeming, and More

The world of earning and burning credit card miles has an undeniable appeal. However, figuring out how credit card miles work can have you falling into a rabbit hole of bonus offers and travel portals.

Before you go click-happy with applying for travel credit cards, it’s important to know how miles work on credit cards. That way, you can make a solid choice in your travel cards, and make the most of your miles. We’ll share the ins and outs of credit card miles, including how they work, how much they’re worth, how to earn miles with a credit card, and how to use credit card miles.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

What Are Credit Card Miles?

So, what are miles on a credit card? In short, they’re a way for credit card issuers to reward you for using their card to make purchases.

Typically, the more you spend, the more miles you rack up. Depending on the card, you can rack up a higher number of points when booking travel on certain airlines or in certain categories.

Aside from redeeming miles to cover the cost of flights, you might be able to use credit card miles for hotel reservations, ride shares, or car rentals. Many credit cards also allow you to redeem your miles for cash back, gift cards, or online purchases with partnering retailers. If it’s an airline-branded credit card, you might also be able to use your miles for upgrades, free checked bags, and in-flight purchases.

Credit Card Miles vs Frequent Flyer Miles

Credit card miles and frequent flyer miles are customer loyalty incentives that both offer ways to earn miles to redeem for free flights.

Most major airlines have a frequent flyer program. Signing up for a frequent flyer account is usually free, and it allows you to earn miles when you book with that particular airline. Depending on the program, you can also use those miles for travel perks, such as seat upgrades, priority boarding, and free in-flight purchases.

With credit card miles, on the other hand, you earn miles when you make purchases on your credit card. Unlike with frequent flyer miles, you don’t have to make these purchases with a particular airline in order to earn credit card miles. However, you will have to apply for a credit card and get approved to get those miles.

Recommended: Can You Buy Crypto With a Credit Card

How Do Miles Work on Credit Cards?

A credit card will reward you with miles when you spend a certain amount on the credit card. Often, cards will offer one mile per dollar spent, though this can vary depending on how a credit card works. In turn, you can redeem these miles for a free flight or other perks.

Some credit cards offer bonus miles for spending in different categories, allowing you to earn more than the standard mile per dollar. For instance, if you use your credit card at restaurants during certain months of the year, you could receive three miles per dollar spent, instead of the usual one mile per dollar.

As for the redemption value (or how much a point is worth in booking flights), that’s worked out between the airline and the credit card issuer. If the redemption value is 1 cent per mile, for instance, you’d need 40,000 miles to cover a $400 flight.

How Much Are Credit Card Miles Worth?

How much credit card miles are worth depends on several factors, including the redemption value, whether you’re booking through a travel portal, and the particular credit card. But typically, each mile is worth 1 cent apiece.

The number of points that you’ll need to book a free flight varies. It largely boils down to the redemption value, or how much a point is worth in dollars. As mentioned before, this value is determined between the airline and the card card company. Additionally, the cost of the flight itself will influence how many points are needed.

Some of the major credit card issuers, airlines, and hotels have travel portals where you can redeem your credit card miles for flights, hotel stays, and car rentals. An incentive might be offered to use these travel portals. For instance, your miles might stretch further if you redeem them through the portal. Or, there might be a featured, limited time offer where your miles are worth more if you travel to certain cities or regions.

How to Earn Airline Miles With a Credit Card

Now, we’ll dig into the fun part: how to earn credit card miles. There are a bunch of ways to rack up airline miles. Let’s take a look at the most common avenues.

Spend on the Card

The more you spend on your credit card card, the more miles you’ll earn. Plus, a credit card might offer the opportunity to earn more miles in certain categories (i.e., 5 times more on flights booked through a portal) or in rotating bonus categories.

While it might be tempting to keep spending in order to earn more miles, remain mindful of your credit card limit and avoid racking up too much debt (not to scare you, but here’s a look at what happens to credit card debt when you die).

Sign Up for a New Card

A credit card might feature a generous sign-up offer. If you hit the minimum on the sign-up offer, you could rack up a slew of credit card miles (just make sure you can afford to still pay off at least your credit card minimum payment).

Typically, you’ll need to spend a certain amount within a particular period after opening your account. For instance, if you spend $4,000 on transactions within the first three months of being a new cardholder, you could net 75,000 credit card miles.

Sign-up bonus offers are constantly changing, so it’s a good idea to check what a card’s intro bonus is currently before you apply. Also make sure to weigh factors aside from just a welcome bonus, like whether there’s a good APR for a credit card.

Recommended: When Are Credit Card Payments Due

Refer Friends

As a cardholder, you also can earn credit card miles when you refer friends. Often, there’s an affiliate link that you can send to your friends and family members. If they decide to apply and get approved for the card, you’ll earn a referral bonus.

Credit card referral bonuses often have limits though. For instance, a credit card might offer a 20,000 bonus miles per referral, but with a 100,000 limit per year. That breaks down to a maximum of five referrals per year.

How to Redeem Credit Card Miles

Once you’ve racked up credit card miles, you’ll need to redeem them. Let’s take a look at how to do so.

•   Credit card’s travel portal: Travel portals usually give you the option to redeem your credit card miles in a number of different ways, such as flights, car rentals, or hotel stays. You might even get a better deal than you would purchasing tickets outside of the portal. Typically you won’t need to provide information, such as your CVV number on a credit card, to redeem your miles.

•   Travel-related platform: Besides redeeming credit card miles through a credit card network’s travel portal, some hotel chains offer their own online platforms. You can choose to redeem credit card miles there as well.

•   Bundling with a partner loyalty program or frequent flyer program: Some credit cards give you the option to transfer your credit card miles to a hotel, airline, or car rental transfer partner.

Recommended: Tips for Using a Credit Card Responsibly

How to Use Credit Card Miles

Perhaps the most obvious way to use your credit card miles is for free flights. However, you may also be able to redeem them for the following benefits as well:

•   Seat upgrades

•   Priority boarding

•   In-flight purchases

•   In-airport purchases

•   Purchases with specific retailers

•   Gift cards

•   Events

Do your homework and look for ways to get the most out of your miles. For instance, some travel portals give you a higher redemption value. In other words, your credit miles will be worth more and go further, and you’ll get more bang for your buck.

How to Check Your Credit Card Miles Balance

Wondering how many credit card miles you’ve racked up? Here are a couple easy ways to check your balance:

•   On your credit card app: You can easily check your credit card miles through the credit card app. Usually, it will also direct you to ways that you can spend your miles.

•   On your online credit card account: Once you log onto your cardholder account, you’ll typically find the number of credit card miles you’ve racked up on the dashboard. You can also see a breakdown of how many miles each transaction yielded. This is important to check regularly anyways, in case you need to dispute a credit card charge or request a credit card chargeback.

•   By contacting your credit card issuer: You can also reach out to your card issuer over the phone to learn your credit card miles balance. Simply call the number listed on the back of your credit card to speak to a representative.

Recommended: What is a Charge Card

Other Types of Credit Card Rewards

Credit card miles aren’t the only reward you can earn from using your credit card. Here are other types of credit card rewards you can swoop in on:

Cash Back

With cash back, you earn back a percentage of eligible purchases made with your card in cash. For example, you might earn 3% cash back, which means you’d get 3 cents back for every dollar you spend.

You can redeem the cash-back rewards you earn in a number of ways, such as a statement credit or as straight cash. However, you might not snag great travel deals like you would with more travel-oriented credit card rewards.

Points

Credit card points offer you a certain number of points for your spending on the credit card. You could get two points for every dollar you spend, for instance. You’ll then be able to redeem those points for a wide range of purposes, though the value of the points can vary depending on the card and how you opt to use your points.

The Takeaway

Credit card miles allow you to get rewarded for your spending with your card. You’ll earn miles whenever you make a purchase on your card, and you can then use those miles to cover the cost of flights and enjoy other travel-related perks.

Beyond looking at a credit card’s miles-earning potential, you’ll also want to look at the APR on a credit card, as well as its fees, terms and conditions, and other featured perks. With the SoFi Credit Card, for instance, you can earn cash-back rewards. Plus, travelers will be happy to hear that the card charges no foreign transaction fees.

FAQ

Is earning credit card miles worth it?

As long as you’re using your credit card responsibly, earning credit card miles to use toward free flights, car rentals, travel perks, and other rewards can potentially help you save.

Which types of credit cards offer airline miles?

Many different credit cards offer airline miles. Usually, travel credit cards or credit cards co-branded with an airline offer additional perks or a greater number of miles earned per dollar.

What are the different types of credit card rewards?

The main types of credit card rewards are miles points, and cash back. Each type of reward has its pros and cons, but they all allow you to earn rewards for your spending on your credit card.

What is the difference between credit card miles and points?

Typically, miles can be used for travel, and they may be tied to a specific airline’s frequent flyer program. Points, however, can be used toward a slew of non-travel related rewards.

Photo credit: iStock/Prostock-Studio

Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points toward active SoFi accounts, including but not limited to, your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, Student Loan Refinance, or toward SoFi Travel purchases, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


1See Rewards Details at SoFi.com/card/rewards.

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Aug
05
2022
Guide to Changing the Name on Your Credit Card

Guide to Changing the Name on Your Credit Card

By | Credit | Comments Off on Guide to Changing the Name on Your Credit Card

If you’re going through a life transition or identity shift, you’ll need to change your legal name. And beyond making the update on government-issued IDs and your social media account, you’ll need to change your name on your credit cards as well.

If you have multiple cards, this might be a tad trickier — and more time-consuming. To avoid the process turning into a stressful, hair-pulling endeavor, we’ll go over the process of how to change your name on credit cards.

Recommended: Tips for Using a Credit Card Responsibly

Reasons for Changing Your Name on a Credit Card

Here are the most common reasons for undergoing a legal name change:

•   Getting married

•   Getting divorced

•   Changing your name to one that’s a better fit for you

•   Changing to mother’s or father’s last name as an adult

•   Undergoing a gender transition (i.e., male-to-female [MTF] or female-to-male [MTF]) and adopting a moniker that’s more representative of your new identity

Steps to Get a Name Change on a Credit Card

Are you asking yourself, “Can I put a different name on my credit card?” The answer is yes — canceling your credit card won’t be necessary. Here’s how to change your name on credit cards.

Update Your Name on Government-Issued ID Cards

Before you reach out to your credit card issuer to change your name, you’ll need to update your alias on government-issued ID cards, such as your Social Security card, driver’s license, and passport.

Not taking this initial step will leave you at a standstill with changing your name on a credit card. That’s because your credit card company will most likely request a legitimate form of ID that verifies that your name has already been legally changed.

To change your name on your Social Security card, you’ll need to submit an application. You’ll also need to provide proper documents verifying your name and identity change. Then, you must submit everything via snail mail or by dropping it off at a nearby Social Security office.

As for changing your name on your driver’s license, each state has slightly different steps. For more information, start by sleuthing around your state’s DMV website.

To learn how to update your name on your passport, visit the U.S. Department of State’s website , where it lays out the process.

Contact Your Credit Card Issuer for Necessary Information

Next, you’ll want to check your credit card issuer’s website for details on how to go about making a legal name change on your credit card. Credit card requirements and procedures for each card issuer can differ.

A time-saving tactic: If you need to change your name across all of your credit cards, block out a few hours and research the steps and necessary information and documents you’ll need to execute the name change. Jot down the main steps and what information and documentation is needed.

Depending on the credit card company, you may have to go to a physical location to make the change, or you may be able to do it over the phone or online. An issuer might ask that you fill out a form through its online portal, while another may have you talk to someone via chat or phone first.

Collect Documents and Information Requested by Your Issuer

If you’ve done your research ahead of time by looking on a credit card issuer’s website, then you might have handled this step before reaching out to the issuer.

Either way, depending on the reason for the name change, here are some documents and information that you might need to gather:

•   Photo ID

•   Government-issued ID like a driver’s license or other legal document showing the name change

•   Signed W-9 with your new name

•   Social Security number

•   Marriage certificate

•   Divorce decree

•   Birth certificate

•   Court order approving the name change

Some credit card issuers will ask for a driver’s license and ID, while others might need more substantial proof, such as a marriage license. Similarly to if you were getting a credit card for the first time, it’s worth investigating in advance.

Submit Your Documentation

As previously mentioned, how you can submit documentation will depend on the requirements and process of the credit card issuer. Some issuers allow you to do everything online or over the phone, while others require you to step foot inside a physical office and speak with a representative. Issuers may have a handy form that you can easily access online, or they might require that you give them a call.

One thing to keep in mind: When making the name change across your cards, or when applying for new cards, make sure to be consistent in how your name appears. Otherwise, this could cause issues later on, given what a credit card is and how it works.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Follow Up If the Name Change Doesn’t Take Effect After Some Time

After the name change is approved by the credit card issuer, you’ll need to wait to receive a new card in the mail. How long you’ll wait before you have a new card in your hands can vary, but expect to wait at least five days.

If it’s been more than 10 days after the change was given the green light, follow up by reaching out to the credit card issuer and asking for a status update. If there’s been a snag, they can look into this further.

Changing Your Name on Your Credit Report

Once you change the name on your credit card accounts, you don’t need to take any action to have this change reflected on your credit reports.

Your credit card issuers will automatically let each of the three credit bureaus know. This usually happens at the end of the billing cycle. And should you open a credit card with your new name, this will also be reflected on your credit report.

If you notice that something went awry while changing your name — for instance, the new name shows up incorrectly — make sure to reach out to the credit bureau where the error appears and file a dispute. Once your dispute is received, the credit bureau usually has 30 days to look into it and get back to you.

How Long Will a Name Change Take to Update?

As mentioned before, how long a name change takes to update will largely depend on the credit card company. Each card issuer has different time frames for when the name change will get approved and processed.

For instance, one credit card issuer number may be able to approve the change over the phone and drop a card in the mail right away. Another issuer might require you to talk to them over the phone, then pay them an in-person visit to drop off your forms and required documentation.

What to Expect After a Name Change

Once your name is updated on your credit cards, you can go out into the world under your new moniker. The transition is usually pretty seamless, though you’ll want to look out for any typos or errors.

You’ll be able to use your credit cards in all the ways you had before — online, in-person, and through your digital wallet. If you’re still waiting for your new card with your updated name to arrive in the mail, you might consider carrying an unexpired government-issued ID with your old name on it just in case.

Does Changing Your Name Affect Credit?

Changing your name doesn’t not affect your credit in any way, shape, or form. While your new name will be reported to the three major credit bureaus on both existing and new cards, it won’t impact your credit history.

Keeping an Eye on your Credit

After you’ve updated your name on all your credit cards, stay on the lookout for any potential snags, such as a typo in your name. Certain mistakes can create confusion and further errors given how credit cards work. If you see anything amiss on your credit report, make sure to report it immediately.

Otherwise, the same basic credit card rules and practices apply once you’ve submitted your request for your name change.

The Takeaway

Making a name change on a credit card doesn’t have to be an overwhelming process. While there are certain steps to take, doing your homework and learning what those steps are and how they differ between different credit card issuers will help ensure smooth sailing. If you’re applying for a credit card, remember you’ll need to open it under your updated name as well.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How can I change the name on my credit card after marriage?

You’ll need to make the change directly with each credit card issuer. Before you reach out, poke around the credit card issuer’s website and look into the specific steps involved. From there, gather the information and required documents. Depending on the issuer, you’ll need to submit an application either online or in person.

Does changing my name impact my credit score?

Changing the name on your credit cards to match your legal name will not impact your credit score in any way. Once the name is updated, the credit card companies will report the change automatically to the credit bureaus.

Does the name on a credit card matter?

Yes, the name on a credit card needs to match legal documents, such as your Social Security number and driver’s license. So if you’re undergoing a name change, you’ll need to update your cards to reflect this.

Should I leave my credit cards in my old name?

No, your credit cards need to match your legal name. If you’re changing your name due to a marriage, divorce, gender transition, or some other reason, you’ll need to update the name on your credit cards so everything is the same.

Photo credit: iStock/BongkarnThanyakij

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jul
18
2022
Exercising in Options? What Does It Mean & When to Exercise

Exercising in Options? What Does It Mean & When to Exercise

By | Growing Wealth, invest, Investing | Comments Off on Exercising in Options? What Does It Mean & When to Exercise

Investors in stock option contracts have the right to buy or sell underlying stocks (or other assets) at a predetermined price within a certain time period. When an investor decides they want to take action on their right to buy or sell, it’s called exercising. There are a number of ways investors can choose to exercise their options contract, depending on their individual goals and financial situation.

Option contracts are complex investment vehicles. They’re a multi-faceted tool that involves precise timing and are backed by lots of strategizing. While options are not for all investors, if handled by experienced traders, options could add diversity to a well-diversified portfolio.

In this article, we focus on the concept of exercising in options. What does it really mean to “exercise an option?” And how do you do it?

What Does Exercising Mean?

Exercising a stock option means that a trader purchases or sells the underlying stock associated with the options contract at the price set by the contract, which is called the strike price. This price may differ from the current market price of the stock.

Options contracts are valid for a certain amount of time. So if the owner doesn’t exercise their right to buy or sell within that period, the contract expires worthless, and the owner loses the right to buy or sell the underlying security at the strike price.

There is also an upfront fee, called a premium, that gets paid when a trader enters into an options contract. If the trader doesn’t exercise the contract, they forfeit that fee along with any other brokerage fees. Most options contracts never get exercised. Some contracts are sold instead of exercised, because the contract itself has value if it has the potential to be exercised later.

There are two main choices of types of options contracts, call options and put options. Purchasing a call option gives traders the right, but not the obligation, to purchase the underlying security at the strike price. Selling put options gives traders the right to sell the underlying security at the strike price.

Each contract is different, and there are also different types of options. American-style options let traders exercise them prior to the contract’s expiration date, while European-style options can only be exercised after the expiration date.

How Do You Exercise an Option?

Generally, traders have several choices when it comes to exercising their stock options. When a trader is ready to exercise an option, they can let their brokerage firm know. The broker will create an exercise notice to the Options Clearing Corporation (OCC) to let the individual or entity buying or selling the underlying stock know that the trader wants to execute a trade on a particular date. The option seller is required to fulfill the obligations of the contract.

The OCC assigns the exercise notice to one of their clearing members, which tends to be the trader’s brokerage firm. The broker then assigns the option to one of their customers who has written an option contract that they have not yet covered. Depending on the broker, the customer they choose may either be chosen randomly or picked on a first-in-first-out (FIFO) principle .

Holding

If a trader thinks a stock will go up in value, they can purchase options at a lower market price, then wait until the market price goes up to exercise the option. Then they purchase at their original lower price and can decide to sell at the new, higher market price. This is one of the benefits of trading stock options. However, traders can’t wait forever, because options contracts do have expiration dates.

Exercise-and-Hold

It is common for company employees to receive stock options, which give them the right to purchase company stock. They can purchase the stock and then hold onto it if they think it will rise in value. However, it’s important for employees to understand the rights they have with their options. Often, stock shares are vested for a certain amount of time, so an employee has to wait for that time to end before they are allowed to exercise the option.

Exercise-and-Sell-to-Cover

Sometimes there are fees, commissions, and taxes involved in exercising company stock options. To cover those fees, traders can exercise options, purchase shares of company stock and simultaneously sell some of those shares to cover the expenses.

Exercise-and-Sell

If a company employee wants to immediately sell their stock options after exercising their right to buy the stock, they can choose to exercise and sell. They will receive the cash amount of the current market value of the stock minus any fees and taxes.

Early Exercise

In addition to profiting off of a stock’s price increase, options traders may want to exercise early so that they can earn dividends off of the underlying security. Traders who write call options should be prepared to close out a trade at any time prior to the contract’s expiration date, especially if the contract is in-the-money. If a put option is in the money, most likely the owner will exercise it before it expires.

Advantages and Disadvantages of Exercising an Option

Exercising options presents opportunities to earn a profit, but there also are potential downsides to exercising options.

Exercising Options

Advantages Disadvantages
Earn dividends from owning the underlying stock. Fees, taxes, transaction costs potentially could cancel out any profit.
Sell the underlying stock for a profit. Increases chance of risk: margin call, stock’s value could decrease.
In general, traders can make a greater profit via closing positions — by buying or selling options rather than exercising them.

One of the few instances where it could be advantageous to exercise a contract is if you’d like to own the stock outright instead of basing a contract on it.

The one way that exercising a contract could actually make you lose out on money has to do with the complicated price structure of options, which consists of two components: extrinsic (time value) and intrinsic value.

If you own options contracts that are in the money, then the price of those contacts will comprise both extrinsic and intrinsic value. If you sell these options, you’d benefit from both the intrinsic and the extrinsic price components.

But if you exercised them instead, you would only benefit from the intrinsic value. Why?

Extrinsic value serves to compensate the writer (seller) of options contracts for the risk they are taking. Once you exercise an options contract, the contract itself effectively ceases to exist, so that all extrinsic value is lost.

How Do You Know Whether to Hold or Exercise an Option?

It can be difficult to know when and whether to exercise an option. There are different options trading strategies that can prove beneficial to exercising early, or to waiting or even selling the option contract itself. Many factors come into play when making the decision to exercise an option, such as

•   the amount of time left in the contract,

•   whether it is in-the-money and if so by how much, and

•   whether the trader wants to buy, sell, or hold shares of the underlying security.

Time Value

One key thing to know about options trading is how options pricing works. Options lose value over time until they are finally worth nothing at their expiration date. If a trader owns an option that still has time left on it, they may consider selling the option or waiting to exercise it. Often it is more profitable to sell the option than to exercise it if it still has time value. If an option is in the money and close to expiring, it may be a good idea to exercise it. Options that are out-of-the-money don’t have any intrinsic value, they only have time value.

Transaction Costs

In addition to the premium a trader pays when buying an option, they must also pay transaction and commission fees to their broker. There can be fees both when exercising an option and when buying or selling the underlying shares.

Increased Chance of Risk

Buying a call option is fairly low risk because the most a trader can lose is the premium amount they paid when they bought into the contract. Exercising an option increases risk, because even if the trader profits in the short term by exercising and buying the stock at a good price, the stock could decrease in value any time. Because the trader already lost the premium amount, they would need to earn at least that amount back to break even on the trade.

Exposure to Margin Risk

To purchase the shares of the underlying security, a trader needs to use cash from their account or take out a margin loan from their broker. If they take out a loan, they increase their chances for risk and greater expenses.

Options Obligations

The owner of a long option contract has the right to buy shares of the underlying stock if they choose to exercise it. The selling trader on the other side of the contract is obligated to fulfill the contract if the owner decides to buy. If the buyer exercises their right, the seller must deliver the number of shares — generally 100 shares per contract — for the strike price set by the contract. If the buyer does exercise the contract, they are then obligated to pay the seller for those shares.

The brokerage firm gives notice to a random seller when a buyer exercises an option that fits the transaction parameters. This could happen at any time prior to the expiration date. A seller can close out their option contract early if it hasn’t been exercised yet. The process of assigning and exercising options is all automated. So if a trader sells an option, when it gets exercised the stock will automatically be removed from their account, and they receive cash in their account in return. The buyer will receive the shares in exchange for cash from their brokerage account.

The Takeaway

Stock options are a popular investing tool to gain exposure to securities with a smaller upfront cost and level of risk. If you’re interested in starting to build a portfolio, a great tool to use is SoFi Invest. The online trading platform lets you research, track, buy and sell stocks, ETFs, and other assets right from your phone — all with 24/7 convenience.

More ways to invest — all in one place. You can connect your banking and any other investment accounts to the SoFi Invest app to see all your financial information easily in one simple dashboard.

Get started trading on SoFi Invest today.

FAQ

How can you tell when to exercise an option?

It could be beneficial to exercise an option if the underlying security’s price is more than the strike price of a call option; or the underlying security’s price is less than the strike price of a put option.

How are early-exercise options different from exercise options?

Early-exercise options differ from exercise options in one way: Early exercise is possible with American-style option contracts only. You cannot do this with European-style option contracts, as they rule that you may exercise on the expiration date only.

What is a cashless exercise in options?

Also called the “same-day sale,” a cashless exercise is when an employee exercises their stock options via a short-term loan provided by a brokerage firm.


Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
*Borrow at 11%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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