I can't get no sleep! Moving from US Options to AU?

[binarfilter]

Hi all, first post here and relatively new to options trading.

I've found some previous posts and there has been some useful information but forgive me for any duplication on like-issues

In short, I'm just reaching out for some feedback as I feel I'm at a fork in the road with my lifestyle and trading commitments. My conversation is around "do I move from the US options market to AU options?" So here goes.

Background
1. I live in Perth but I learnt to trade US options using Trademonster, which is now Optionshouse (2015)
2. I've been actively trading for about 12 months. The journey has been a lot of fun
3. My future is moving towards intra-day trading.
3. I currently run a small business, have 4 young kids and exercise at 0500-0700 six days a week.

Current Trade Activity
My current trade strategy uses credit and debit spreads, strangles and iron condors, so I haven't moved into any intermediate or advanced strategies yet. This has gone well but my sleep patterns have not my daily routine has gone to poo because of the consistently broken sleep.

I'm now considering just trading AU options as I cannot afford to lose the sleep with my current lifestyle and commitments. I get so much out of the early morning starts, the training and it sets to tone for my day.

From the posts I can see there are some recommended trade platforms for AU options, so firstly has there been any recent changes in the platform space that would change the recommendations for 2015? Eg, Interactive Brokers seems to be favorable for AU spreads but in your experience are there any other platforms or data services that you prefer?

I'm sure others have been through this so I do appreciate any questions or feedback. Please feel free to talk about anything that you identify with, we'd love to hear your story.


Thanks community!

 

[cutz]

From the posts I can see there are some recommended trade platforms for AU options, so firstly has there been any recent changes in the platform space that would change the recommendations for 2015? Eg, Interactive Brokers seems to be favorable for AU spreads but in your experience are there any other platforms or data services that you prefer?

Hi.

I can only recommend IB for ASX options.

 

[minwa]

I learnt to trade US options using Trademonster, which is now Optionshouse (2015)

My current trade strategy uses credit and debit spreads, strangles and iron condors, so I haven't moved into any intermediate or advanced strategies yet.

This is my biased opinion so take what you wish frrom it..You learnt from a broker and of course they taught multi-legged spreads because it generates them commissions much more than others. They probably taught you to close condors when it's at like 80% max profit or similiar ? You'll be doing 8 legs of commissions more than the pure call & put buyer. (Actually it's many multiples more than 8, because condors are lower leverage than vanillas so you would be doing many more multiples to achieve the same risk profile).

Also you don't need any intermediate or advanced strategies..it's probably what the educator calls them when they try to upsell you.

I currently run a small business, have 4 young kids and exercise at 0500-0700 six days a week.

If you're busy during the day then there's no reason you should be up for most of US session. You're on the favorable time zoned West Coast, can't you trade the first hour or two of the US session or the last hour or two seeing your strategies don't require much market-watching maintenance besides alerts set.

My future is moving towards intra-day trading.

Different game, and I am assuming it's not options so you'll be open to a wide variety of market's indices that's easier to suit your lifestyle.

I'm now considering just trading AU options as I cannot afford to lose the sleep with my current lifestyle and commitments. I get so much out of the early morning starts, the training and it sets to tone for my day.

If you can't just trade one hour of the US session (I see no reason you can't with your strategies) then you can consider the AU markets. Just be sure check out its liquidity first. The spreads will most likely kill ya on most stocks especially with those spreads you're doing. Uphill battle I wouldn't wish to participate in, unless you're only trading the XJO and the very few options-liquid stocks. Even then still uphill battle with higher spreads & commissions compared to US.

 

[Sharkman]

i've been trading ASX options for the last 6 or 7 years.

condors, iron butterflies, possibly even vertical spreads, you can almost entirely throw all that stuff in the bin when it comes to trading ASX options in my opinion. as pointed out above, you're already going to get hit with a ton of commissions with those strategies. at least if you do them in the US the spreads won't be too much of an issue. try those strategies in the ASX and the spreads will absolutely belt you.

for example earlier today i was looking at the June CBA $85 calls and saw the market was showing 1.40/1.78. you can't trade that - say you had a long position and want to take profit, but they don't fill you until you drop your offer to 1.45? that sort of impost is crippling. and then to rub salt into the wound, later on in the trading session with the underlying virtually where it was when you sold, you notice what is probably another retail trader as he's trying to buy 10 contracts. you see him slowly up his bid, MM refuses to fill, he keeps upping, MM still doesn't fill, he persists (probably 'cos he needs to close out a short position that's moving against him) and keeps going, way beyond the mid, then they finally take him out at 1.72. that is what tends to happen in the ASX options market these days. been there, done that. which is why i've changed my strategy these days to the below.

spreads used to be consistently decent in what i call the big six optionables (ANZ, BHP, CBA, NAB, RIO, WBC) - by decent i mean something along the lines of 1.56/1.60 for the above - and occasionally decent in others such as QBE and WPL, but they've been getting wider and wider overall since the last year or two. could be something to do with Optiver exiting the market - less liquidity and competition. these days, they're occasionally decent in the big six, and consistently horrible in just about everything else.

so the bulk of my trades these days tend to be simple, single legged trades. if there's decent vol on offer at a strike i'm happy to take delivery at (support level, upcoming div strip opportunity or whatever), i sell naked puts and just let it run to expiry, except on the rare occasion that there's a significant enough event that changes my outlook on the underlying in the interim. similarly, if i see decent vol for a strike i'd be happy to take profits at on a stock i hold, i sell covered calls and again just let it run to expiry. that way, i don't have to worry about getting ripped off by the spread when closing the position because most of the time i only enter the position, i don't exit it. this makes the spread more manageable since if they don't give me the mid or close enough to it when i'm looking to open the position, i take the order off the market and walk away (luckily, unlike the US, there's no cancellation fee, you can put in an order to "probe" the spread and quickly take it off if you don't get a good fill, as many times as you want, without cost).

i do still put on the odd vertical or calendar, but with the worsening spreads, those tend to be the exception rather than a regular trade. so for me options have been almost entirely reduced to a premium collection tool. which is unfortunate as they have so much more flexibility than that, but until the dynamics of the ASX options market improves, i feel this is the most appropriate strategy for me. and definitely no butterflies or condors!

 

[cutz]

for example earlier today i was looking at the June CBA $85 calls and saw the market was showing 1.40/1.78. you can't trade

Hi Sharkman,

How long did you leave the order in market ? I probably would have expected a fill at 1.56 minimum. Don't know how the MM systems work but I would expect that if it's clearly visible that you're working your sell order down past the mid the MM's may sit tight for a bit. With combinations I normally get a fill at around the mid of the indicative price, on rare occasions better than indicative, depends on the day, obviously when markets are getting slammed and jumping all over the place it becomes hairy.

 

[Sharkman]

Hi Sharkman,

How long did you leave the order in market ? I probably would have expected a fill at 1.56 minimum. Don't know how the MM systems work but I would expect that if it's clearly visible that you're working your sell order down past the mid the MM's may sit tight for a bit. With combinations I normally get a fill at around the mid of the indicative price, on rare occasions better than indicative, depends on the day, obviously when markets are getting slammed and jumping all over the place it becomes hairy.

that CBA description above was just a hypothetical scenario - i didn't actually trade it. i remember posting a real life example of what i meant by "been there, done that" a while ago (just looked it up in fact - here it is: https://www.aussiestockforums.com/f...t=26867&page=2&p=782627&viewfull=1#post782627).

i typically leave an order on the market for several seconds at most, if it's not filled by then i either move it in a tick and wait another few seconds, or take it off entirely. my experience is similar - often i do get the mid, sometimes they even fill me on my side of the spread, but that's usually only with front month, near the money contracts. when it comes to options that are ITM by 2 strikes or more, and/or it has more than a month to expiry, the spreads are wider and they tend to make you cross more of it.

that incident with the NAB spreads i posted earlier illustrates the major problem with trading ASX options as things are now. you might be able to get a good fill to open a position, but you don't know what the MMs will be like when you want to close it. hence why i've changed my options strategy to be based around premium collection - when it comes to naked puts/covered calls i'm almost always selling front month near the money contracts, where the spread usually tends to not be much of an issue, and by letting them run to expiry, i usually avoid those situations in which the spread does tend to be a problem.

 

[binarfilter]

Minwa and Sharkman, thanks for your real insight. Definitely what I wanted to hear.

Minwa you made me chuckle - you're so right RE the educators approach to their programs.

Yep the 1-2 hours of activity at open/close has been my norm, I will just change my strategy so that I don't have to be as present overnight, eg the vertical spreads in Optionshouse definitely do not allow you to set up stop losses on both legs so if you're taken out of the short while you sleep then watching the long (or even getting up to close it) causes the sleep issues.

Sharkman thanks for the feedback on your trade experience between the two markets. THB I had no idea but this sort of info helps.

I have plenty of material to go through at the moment but do either of you have any recommendation for further education material or resources to access? Eg, Traning organisations, books, or even professional coaches/educators. I'm also looking at some meeting groups for Perth so if you have any exposure in this area please let me know.

Thanks again you two.

 

[randomcow]

Hi Sharkman -

I'm also in a similar boat to OP in that I'm looking to switch from trading US markets to ASX, but my trading style is more similar to yours so thanks for the insights.

I've been considering companies outside of the ones you listed (eg SUN). At the volume I'll be doing and including trading costs my calculations still show annualised returns of 16-20%, depending on whether I cross the spread or not. I'm also very patient.

So I was wondering, is there any issue with me having my retail-size trades (5-10 lots in a clip) sitting at the same level as the MM's best offer? Would I be better to move it in a fraction? Not keen on crossing the mid, let alone the entire spread.

 

[Sharkman]

Hi Sharkman -

I'm also in a similar boat to OP in that I'm looking to switch from trading US markets to ASX, but my trading style is more similar to yours so thanks for the insights.

I've been considering companies outside of the ones you listed (eg SUN). At the volume I'll be doing and including trading costs my calculations still show annualised returns of 16-20%, depending on whether I cross the spread or not. I'm also very patient.

So I was wondering, is there any issue with me having my retail-size trades (5-10 lots in a clip) sitting at the same level as the MM's best offer? Would I be better to move it in a fraction? Not keen on crossing the mid, let alone the entire spread.

i have a few thoughts on this. not necessarily correct, just my take on the whole thing.

first of all, you don't want to "leave an order sitting patiently" without watching it. you might place the order to match the best MM bid/offer, but once the underlying moves, if you don't watch the market and adjust the order accordingly, it won't be matching the best MM bid/offer for long. once the MM sees a static order like that, he simply waits until the underlying moves enough that your order is sufficiently on his side of the spread that he can instantly delta hedge for a profit based on where he's set the IV, then he takes you out. this is why i only leave an order there for a few seconds, if it doesn't get filled i either move it in a tick or take it off the market, depending on how badly i want a fill.

there's no issue with doing retail sized trades per se - they won't scoff at it and refuse to fill it just because the volume is small. when i first started out i just did 1 contract at a time (back in those days contract size was 1000) and had no problems getting fills. you might have issues getting fills if you insist on only dealing on your side of the spread however. i don't have the exact stats but i would guess that 90% of my fills (if not more) would be by MMs and they will rarely, if ever, be willing to go very far beyond the mid.

so essentially if you really only want to deal on your side of the spread, your best hope is another retail trader looking to take the other side of the trade - but, like you, he'll be trying to get the best possible price too. so you would require another retail trader looking to take the other side of the trade and is more desperate for a fill than you are and you have to be the best NBBO when he first puts his order on (otherwise the MM will take him out - the MM bots will react in microseconds, way faster than you or i can). in short - not going to happen very often.

i did once put in an offer of 1.59 for some CBA puts into a 1.54/1.60 spread and got insta-filled, but on checking the market immediately afterwards this appeared to be a case of MM overlap - MM 1 was showing the market a 1.50/1.60 spread and MM 2 showed a 1.54/1.64 spread. so the NBBO showed 1.54/1.60 but in reality MM 2 took out my order at his mid. this is not a frequent occurrence however.

TL;DR: you have to be prepared to take the mid or near to it if you want to get your options trades filled on a consistent basis. at least in the ASX.

 

[randomcow]

Appreciate the response Sharkman.

If I'm getting filled at the mid then it's not too bad and I can probably make it work. On the US market you are actually getting worse than mid most of the time because it's not too painful to hit the bid (trying to see the silver lining here).

I think the next step is to get a few executions. Thanks again!

 

[randomcow]

Actually, one more question: is there a time of the day that you have found is better for getting executions on your puts and covered calls? After lunch, etc.

 

[sinner]

(Actually it's many multiples more than 8, because condors are lower leverage than vanillas so you would be doing many more multiples to achieve the same risk profile).

Just one small note on this, basically, volatility clusters.

https://en.wikipedia.org/wiki/Volatility_clustering

Because of this attribute, the optimal approach is not run huge multiples at a single point, but rather identify the start of clusters where implied vols are higher than your forecast, and build your position over the course of the cluster.

 

[Sharkman]

Actually, one more question: is there a time of the day that you have found is better for getting executions on your puts and covered calls? After lunch, etc.

i don't really have an answer. i am (some might say foolishly) combining options trading with a demanding full time job so i can't watch the market all day, i have to do the work that i'm paid to do for most of it. i'll watch the market during my lunch hour (which in Singapore coincides with the final hour of trading on the ASX) and make almost all my trades then, so i don't really know how easy it is to get fills at other times in the trading day.

my guess is that options would be slightly better bid at the start of the day and generally ease a bit over the day unless some news emerges (due to a little more time to expiry at the start), and i'd also guess spreads will slightly narrow over the course of the trading day (due to MM having more data with which to fine tune his pricing - similar to how a bookmaker would sharpen his odds as more punters pile in). but i'm just guessing, i don't really have any hard evidence. maybe a full time ASX options trader (if there are any on here) might be able to give us some more insights as to whether there is any pattern between time of day and getting good fills/narrow spreads.