How to.....options and warrants?

[jkool]

Hi everyone,

I have been looking and reading up on options and warrants as an alternative to the stock tradig. I realize that options and warrants are high risk instruments which can earn/lose substantial amount of money pretty quickly, which is why (especially that losing money part) I havent tried trading them yet at all.
I do have a basic understanding of put/call principles, timing issue etc. but I was not able to work out how to actually go about trading them.
I mean I tried to add an options trading feature/permission to my basic ComSec shares trading but ran into some obstacles there. They basically wanted to know how long do I trade shares and how much finance I have etc. on which base they rejected me as not suitable (or something on those lines).

So finaly to my question: is the options/warrants trading for everyday not-multimillionare-yet man like me or is it basically only reserved for big shots and financial institutions with large capitals?

 

[stefan]

jkool

There is a good reason behind the questions you have to answer when applying for option trading.

Due to the very high risks, your broker will not let you trade options without a few years of experience in the share market and some substantial capital. (No need to have million bucks). It all comes down to experience and a portfolio that allows you to cover any calls you might fall into.

I know I'm risking to be unpopular, but you should be glad they rejected you. You can probably find somebody who will accept your application but that would do no good to you.

Again, it has nothing to do with multi million dollar men or financial institutions.

You said you've read about options, so you know why the risk is considered much bigger than with shares. Especially as time is no longer your friend, but your worst enemy when it comes to options.

Happy trading

Stefan

 

[jkool]

Stefan,

thanks for prompt reply mate. Basicaly I must agree with you that from my todays prospective I should be glad I had been rejected. I was thinking of options quite a while ago when I still believed in those "get rich quick" schemes as presented by various "investors".

My approach to investing has changed since then quite considerably - I do think of myself as a very conservative investor and I am not thinking to jump in options even if I could.

Having said all that I still like the idea of "safe" covered calls type of income which is where my current interest in options comes from. Would not that be a way to go?

 

[stefan]

jkool,

I'm glad to see what you're after. Indeed a long call would have to be the way to go to get into options.

Your broker unfortunatelly doesn't care as he can't limit you to long calls only. So for him the risk is the same. (at least I wouldn't know of a broker who offers long calls only).

Keep trading and maybe check with other brokers if you can get options included.

Happy trading

Stefan

 

[malachii]

Actually Sanford will allow you to write just covered call options.

 

[stefan]

Well there you go then! Thanks malachii.

 

[JetDollars]

Actually Sanford will allow you to write just covered call options.

My understanding is that to write a covered call options you got to own shares.

Are you talking about Naked Call Options?

 

[GreatPig]

JetDollars,

I think Malachii means that broker will allow you to write covered call options but not trade other types of options.

In other words, it's just an indication of which options you are allowed to trade with them, not saying you can write a covered call without holding the shares.

GP

 

[JetDollars]

Thank GreatPig

 

[sam21poddy]

I used to trade some instalment warrants and after making several small profits I went into hot instalment warrants because the leverage was greater. I made a few small profits and then a very large loss. I think it is safer to trade the basic instalment warrants (especially if you are starting out) because they are safer even though they don't have the same high leverage and chance for higher profits. The funny thing is that I can read and read and read every other trader's experiences in trading, but I never seem to learn a lesson until I have had personal experience of it.

 

[jkool]

Malachi: thanks for the lead I will check it our riteaway.

sam21poddy: Yeah I know what you mean also I can read and listed to other people but only learn when I do it myself (and get burnt).

 

[rembrandt]

Suggest you read such as 'Trading Stock Options and Warrants' by Chris Temby and develop some trading goals and strategies.

Then look for a 'full-service' Options Broker who will help you trade.

Comsec have a four level Option trading regime and from memory you need to be level three to write Options and level four to write naked.

 

[jkool]

rembrandt: I have been ComSec's client for a while now and never really did too much research on their option trading - my fault. I had a look into that at CommSec few months ago and now only recall that they had some rather complex conditions (at least for myself) to comply with for options tradin.

BUT I better stop braging about it here and go and have a look there again.

Cheers anyway

 

[wayneL]

Hi guys

Just a point on Sanfords;

They allow you to trade in addition to long puts and calls
covered calls
naked puts
vertical spreads

all online.

Some of you are using options to increase leverage ( and therefore risk)...I would strongly suggest you look at them in a different light...as a risk LIMITING instrument.

"the first duty of the guerilla fighter is survival!" Che Guevara

 

[crashy]

hahaha FORGET sanfords unless you want to supply 10x normal margin

increased leveraged? no way!

 

[Bingo]

I trade my options through Andrew West. I trade all types of options. Margin is not an issue as the existing portfolio is sufficient. They will take any shares on which options are currently traded. It is pretty efficient as holdings are lodged electronicaly with the Options Clearing House.

You can for example sell a naked call on say CBA and your other stock holdings provide the margin cover.

In fact such a sale is cash flow positive as you get the premium immediately. Kind of a strange way to borrow money.

Bingo

 

[wayneL]

hahaha FORGET sanfords unless you want to supply 10x normal margin

Bummer! But you gotta admitt that those margin reqirements would save quite a few novice arses.

BTW I use IB... you can construct any strategy you want all on TWS. Brokerage is from $1 per contract (a contract is 100 shares in the US). Unfortunately for ASX traders they don't do aussie stocks/options.

Cheers

 

[SuperTed]

I have several accounts. Primarily use Tolhurst and Commsecc, because they require OCH margins only on naked writes.

The margin requirements are what force people out of the game or stop them from getting in in the first place. Do not use Sandford, Etrade etc as their 50- 100% cash cover on top off the OCH margins are unrealistic (you have to be a millionare to write naked with them).

So basically your naked strategy may be fine but the margin calls from the wrong broker will force you out before expiry.

I originally used tdwaterhouse and they required 20% + OCH margins, and that was very difficult when i first started out.

 

[DTM]

I don't know about you guys but...., but I would NEVER write naked calls as
the risk is scary!!! All you would need is a bit of news that would cause the share to spike either up or down and that would be the end of you.

 

[DTM]

Just tried to buy some AMC 7.25 Dec 04 puts @ .055 X 20 contracts. Couldn't get the price I wanted. Pure speculation play but I feel that AMC is still volatile and may go down tomorrow. The price ended at $7.23 and was rising all day today.

It will be interesting to see if my guestimate is right or it would have been egg on my face.