Thursday, March 19, 2009

Apply before you leave your job

Rupal wanted me to pass this along to anyone considering early retirement or a hiatus from employment:
Make a list of the places where you will be applying for anything financial (Credit cards, loans, leases and the like) and apply before you leave your job.

We learned this the hard way. It didn’t occur to either of us until we had already left our jobs. Here are a couple of real examples.

After years of not having time to spend on my portfolio, I decided that I would look into selling covered calls. I own a few ETF’s (SPY, QQQQ). I understand the theory and the risks and rewards of selling covered calls well. But I found out that my brokerage account wasn’t approved for Options trading. So I logged on to my brokerage and applied for it online. But in the application, I had to state that I was unemployed and had no income to speak of. Sure enough, I got rejected. (No complaints, I would have done the same thing if I had been the one reviewing my application.)

Second example: My wife and I are now applying for a new credit card because it has no foreign fees for transactions abroad. (That would save us 2-3% on each transaction in India.) But I won’t be too surprised if we get rejected.

Maybe I should try claiming that I am self-employed. I know if I had applied when I had my corporate job, I’d have gotten the approvals fairly easily.

Lesson: Before leaving your job, take the time to think about (and make a list of) the various places that you would be applying for anything financial. If you are planning to move to a different town after quitting your job, you should seriously consider getting your leases, loans etc. done while you are still employed.


Linda said...

Are you sure your rejection for options-trading approval was due to your job status? Often, when you change your trading status, you're required to state whether you're trading for speculative or other reasons. If you were cautious about your answers, not considering your intentions with covered calls to be speculative, perhaps you checked only the most conservative-appearing choices. Brokerages have become very cautious about the trading levels they award to traders, and they might not have felt that the answers you provided about your intentions were appropriate for options trades. While options trades can be used as a means to hedge investments, particularly when they're used to establish a collar (covered call, with the credit received for the call then used to purchase a protective put), brokerages sometimes treat them as if they're akin to handling an explosive. And they can be, if used unwisely. Your brokerage cannot and will not tell you the "proper" answer to upgrade your trading status, but you might just take a look at the answers you provided and see if they might have contributed to the rejection. I'm not a broker and this isn't meant as trading advice, but I have known people whose first upgrades in trading level were rejected for this reason.

Ram said...

Thanks, Linda. I am not sure as to why I was rejected, and it is possible that I came across as being too conservative.

I will try again soon, but my main point was that it becomes more difficult if you state no income, no job.


Linda said...

That was a great point to make, Ram, as it's an important consideration. I've just discovered your blog and have enjoyed reading it.