Growing pains

[Fox]

Profiling using data from post #56. Plot looks similar when sample size increased to 1500.

 

[Fox]

Bungle #6 Human error

I attempted to buy an iron butterfly (IB) today for a $1.14, using Interactive Broker's TWS. This was a credit trade ie. I was to receive $1.14 for this trade. I was careful to preview my order to ensure that it was indeed a credit trade. IB's convention is that if you bought a spread for a credit, the price of the spread is shown as a negative price. I verified that it was -$1.14. I then transmitted the order. So far so good.

I then decided to change my price for a better credit of -$1.16 and wait for a fill. I clicked on the price field and must have hit the backspace key all the way to the left, when I should have stopped at the minus sign. So I entered $1.16 instead of -$1.16 and hit the transmit button. To be honest, I'm still unsure that I actually made this mistake, but the audit trail suggests that I did.

It was an instant fill, much to my surprise. Fear set in. This is really turning into a nightmare. I checked my invoice and to my horror, it was a debit instead of a credit.

I called IB customer support. They contacted the counter party, which I assume is the MM. The counter party refused to accept that a mistake was made when it clearly was the case. I lost my faith in humanity today. The worst in us surfaces when interactions are anonymous.

I have bought and sold IBs a few times and have never made a mistake until now. This is one hard mistake to forgive myself. I also find it hard to believe that the trading platform did not have a reasonableness test built into each order. If dropping my coffee cup onto my keyboard accidentally resulted in $100000 being the order price transmitted, I dread to think what the consequences of that would have been.

Lessons learnt:
1. Spread orders are not bound by bid and ask prices. If you enter an incorrect price, you are not limited to the bid and ask price.
2. Human errors will occur. You can only try your best to be as careful as possible.

 

[Grinder]

I know the feeling Fox it, it bites hard. Not giving you any false hope but when something simmilar happened to me i was like a dog with a bone & refused to quit barking, funny enough by my surprise the broker bought into it & finally caved. He ended up wearing half of it for me, thinking I was gunna trade some size with him, changed brokers a week later.

 

[wayneL]

Bungle #6 Human error

I attempted to buy an iron butterfly (IB) today for a $1.14, using Interactive Broker's TWS. This was a credit trade ie. I was to receive $1.14 for this trade. I was careful to preview my order to ensure that it was indeed a credit trade. IB's convention is that if you bought a spread for a credit, the price of the spread is shown as a negative price. I verified that it was -$1.14. I then transmitted the order. So far so good.

I then decided to change my price for a better credit of -$1.16 and wait for a fill. I clicked on the price field and must have hit the backspace key all the way to the left, when I should have stopped at the minus sign. So I entered $1.16 instead of -$1.16 and hit the transmit button. To be honest, I'm still unsure that I actually made this mistake, but the audit trail suggests that I did.

It was an instant fill, much to my surprise. Fear set in. This is really turning into a nightmare. I checked my invoice and to my horror, it was a debit instead of a credit.

I called IB customer support. They contacted the counter party, which I assume is the MM. The counter party refused to accept that a mistake was made when it clearly was the case. I lost my faith in humanity today. The worst in us surfaces when interactions are anonymous.

I have bought and sold IBs a few times and have never made a mistake until now. This is one hard mistake to forgive myself. I also find it hard to believe that the trading platform did not have a reasonableness test built into each order. If dropping my coffee cup onto my keyboard accidentally resulted in $100000 being the order price transmitted, I dread to think what the consequences of that would have been.

Lessons learnt:
1. Spread orders are not bound by bid and ask prices. If you enter an incorrect price, you are not limited to the bid and ask price.
2. Human errors will occur. You can only try your best to be as careful as possible.

Fox,

I had some funny things happen to me with fly orders this month also.

I put it in the "You Idiot" file as a mistake in setting up the order, but still unsure what the hell happened.

The lessons I learned long ago.

1/ It's one trade, correct it and move on.

2/ Have a "You Idiot" file. You can laugh at yourself and show it to your grandkids... even put some of it in your book when you become rich and famous.

3/ Compare it to some of the legendary fat finger trades from insto traders, you'll feel better once you realize that even the pros #### up.

4/ Have a beer an enjoy the day anyway.

One day the mistake will be in your favour. I once made $30k on a stop I forgot to cancel LOL. It still went in the "You Idiot" file though, it could easily have gone the other way.

Cheers

 

[cutz]

Hi Fox,

It looks like we all make errors, i had a large setback some time ago, buy as an opening trade instead of a sell, choose to let it ride but lady luck coupled with massive negative theta wasn't so kind.

Still make errors, no matter how careful i am it still happens from time to time but now i reverse them straight away, i think errors are part of doing business.

BTW, those iron flys, i prefer to execute ( well a slight mod to the iron fly, double backspreads ) as short straddles and long strangles, another mazza tip.

 

[Fox]

Thanks for your soothing words, guys. It's good to know that I do not have a monopoly on "You Idiot" mistakes . It is approaching 24 hours since the unfortunate incident and time is starting to heal, but very slowly though.

Logically, I know that I should eventually offset this temporary loss if I were to survive this game. If this is not the case, then I should not even be options trading at all.

Emotionally, it feels as if I'm playing Manchester United with Man U given a 10-0 head start.

Someone once wrote that a man who enjoys exciting bedroom antics with his wife is called a happily married man. A man who does not is called a philosopher. I think it's time to put my philosopher hat on today.

Wearing this hat, I think that the mishap is actually a positive indication. For me to make this error, it must indicate some complacency on my part. Complacency can only come about if I have lost fear. To lose fear, I must have gained confidence.

My record on low prob flies so far has been 2 losers, 3 winners. The first 2 trades were the losers and these happened when I was learning most. The last 3 trades I executed have been winners and perhaps I must have been getting complacent.

The best analogy for trading with IB is perhaps that of owning a gun. It is essential for me to hunt for food. It can also help me shoot myself.

I recall my ancient days with ETRADE where a human operator vetted each spread order and kept stopping me from making trades that were logical to me. I was pretty frustrated when that happened. I found IB and I felt free to trade as I like. Freedom comes at a cost. That cost is vigilance and self restraint.

The whole incident could just be a computer glitch on IB's part and I'm rambling on for no reason. I still maintain that possibility. As per the gun analogy, who is responsible if the gun misfires? Or perhaps the correct question is if a misfiring gun is better than no gun?

 

[cutz]

Hi Fox,

If you don't mind me asking what was the result, it's always been a bit of a mystery to me, what if a negative indicated spread was bought for positive pricing.

Have you got a breakdown of all the legs and how they compare with the settlement prices?

 

[mazzatelli]

I once forgot that Aus date formats[dd-mm-yy] differ to US [mm-dd-yy].
Shorted vol on a stock thinking earnings was later, when in fact it was that very day
Deltas accumulated in after market trading...I literally sat there and laughed [what else could I do?]

Fox, its all part of the gig. Have this :alcohol: and/or one of these:bong: :

 

[Grinder]

Happening more often now that Im waking up in the middle of night, trading half asleep while the cat does'nt stop hassling me to let it out. Fortunately my broker platform prevents wrong orders (BTO already open orders, STC when I should be buying)

Fox, its all part of the gig. Have this :alcohol: and/or one of these:bong: :

Lol

 

[Fox]

If you don't mind me asking what was the result, it's always been a bit of a mystery to me, what if a negative indicated spread was bought for positive pricing.

Have you got a breakdown of all the legs and how they compare with the settlement prices?

The red ellipse is the overpriced OTM put option sold to me. It should be a few cents or so if this was executed as a credit spread. By entering a debit spread, the additional cost is passed to overpriced OTM put of $2.355. Multiply that by 2 Aussie contracts ... ouch!

The fact that +$1.165 exceeded the ask price of slightly less that -$1 did not result in -$1 being the settlement price. The bid and ask price of a spread is just an estimate of the price of the spread and NOT the actual bid and ask price. Novices beware! Just because I entered a limit order of +1.165 which exceeded the -$1 ask price did not result in the ask price being settled. It was my limit price that was settled.

My natural instincts tell me that if I intend to purchase an item and I am willing to pay more than the asking price of the seller, the seller's price is the settlement price. My experience makes a mockery of the term limit order and bid and ask prices being displayed in TWS for spreads.

 

[Fox]

Fortunately my broker platform prevents wrong orders

Does your broker do Aussie options? Or is US options only?

 

[mazzatelli]

That is one small butterfly!!! - personally would require the fly to have a minimum 5pt differential. Out of curiosity [no need to answer] is this spread still active?

 

[Grinder]

Does your broker do Aussie options? Or is US options only?

It's OX. Just the US now. Have an account with IB but don't use, don't like the cancellation fee or lack of confirmation screen amoung other things. Miss the real low commish fees from IB, but it's all a trade off.

 

[mazzatelli]

There is a way around the cancellation fee for IB. Instead of canceling the order- substitute a ridiculous price. E.g. buying a calendar, decide to scrap it, place the order as $0.01 [assuming GTC]

 

[cutz]

Thanks for sharing Fox,

Yeah the indicative spread price is the resultant of the legs showing spreads, some of those legs may only be showing one side so i can sort of see how something like that could happen.
I suspect it would have been the case with the 27 put, a botched trade on the no show side would have been a free for all.

 

[Fox]

the cancellation fee

I did not realise that there was a cancellation fee. I never had any cancellation fee charged to me for Oz options. So this is just of US options I presume? Also, strange that this fee is charged by IB and not by OX. How much is the cancellation fee?

 

[Fox]

is this spread still active?

Yes.

require the fly to have a minimum 5pt differential.

By "5 pt differential", do you mean something like 25/30/35? I used 27/29/31 because the profit zone (a.k.a goal posts) was more than +/- 1 sigma (weekly period). I'm still trying and learning as I go along ie. trial and error. Any comments/suggestions/hints/advice are more than welcome, Mazz.

 

[Grinder]

I did not realise that there was a cancellation fee. I never had any cancellation fee charged to me for Oz options. So this is just of US options I presume? Also, strange that this fee is charged by IB and not by OX. How much is the cancellation fee?

Can't quite remmeber, believe it's stated on their website somewhere. Theres alot of things one broker will do and another won't. Don't bother calling them to ask unless your after some BS line (if you an get a hold of em that is)

There is a way around the cancellation fee for IB. Instead of canceling the order- substitute a ridiculous price. E.g. buying a calendar, decide to scrap it, place the order as $0.01 [assuming GTC]

Your an ideas man

 

[mazzatelli]

By "5 pt differential", do you mean something like 25/30/35? I used 27/29/31 because the profit zone (a.k.a goal posts) was more than +/- 1 sigma (weekly period).

Yes.
My bias is due to inefficiency of dynamic hedging such a small profit zone + if it is a vol bet, I'd prefer more exposure of atm vols. But my trading/hedging style differs to yours.

Apologies, as you were

 

[wayneL]

Yes.
My bias is due to inefficiency of dynamic hedging such a small profit zone + if it is a vol bet, I'd prefer more exposure of atm vols.

By preference also. FWIW