Option popularity declining due to CFDs?
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I would think CFDs are probably only more useful for replacing deep ITM options being used for pure directional trading. Even then, options have a built-in stop loss which holds the position even if it reaches max loss point. Sometimes, that option can come back to life before it expires. With CFDs you are out when your stop loss is hit.
Counter party risk is much better with ETOs (exchange traded options) than CFDs due the function of option clearing houses. I guess the worst negative with deep ITM options is liquidity and the resulting wide bid/ask spreads.
But CFDs can never replace those wonderful greeks that come with ETOs. Yes, they are complex, but they also give opportunities and the ability to move risks between the greeks that are simply non-existent with CFDs or any other trading vehicle to my knowledge.
I don't like warrants much - I believe they are not as well regulated as ETOs and each warrant series has it's own PDS - often around 100 pages long. And you can only buy warrants so it removes many of the advantages of selling as is the case with ETOs.
Company options are different to ETOs and one would need to read their PDS to find out the individual terms and conditions.
So I think the answer to your question is "it depends". Might be useful for some, but CFDs simply do not replace the full function of options.
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Have a look in the US market.
Tell me if options or CFD's (hint they don't exist) is losing popularity
The answer will depend on your intentions
wayneL
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My opinion is that trading warrants (not installment warrants etc) should die a miserable cold and lonely death. They are crap designed to enrich the institutions that issue them at the expense of the unaware.
Many people who used options strictly for leverage probably hopped over to CFDs (wisely probably, or maybe not so wisely, who knows?) But as sails points out, intelligent option trading is about exploiting the non-linear relationship to the underlying price, something that is not possible with CFDs. In other words, options and CFDs should not be directly compared.
If the Oz options market has dwindled, perhaps some of the blame could be leveled at market maker practices... who don't seem to adhere to their charter properly.
As Mazza points out, option activity is increasing in the US (sans market crash influences). Option trading is very healthy there.
Many people who used options strictly for leverage probably hopped over to CFDs (wisely probably, or maybe not so wisely, who knows?) But as sails points out, intelligent option trading is about exploiting the non-linear relationship to the underlying price, something that is not possible with CFDs. In other words, options and CFDs should not be directly compared.
If the Oz options market has dwindled, perhaps some of the blame could be leveled at market maker practices... who don't seem to adhere to their charter properly.
As Mazza points out, option activity is increasing in the US (sans market crash influences). Option trading is very healthy there.
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I agree with Wayne and Mazza in that options in the US markets are healthy.
Any decline in option interest here in Oz is more likely option traders moving their trading to the US. When circumstances are more conducive for night time trading, I am not planning to stick with the Oz market either.
Any decline in option interest here in Oz is more likely option traders moving their trading to the US. When circumstances are more conducive for night time trading, I am not planning to stick with the Oz market either.
wayneL
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FYI
http://www.forbes.com/afxnewslimited/feeds/afx/2009/01/02/afx5875725.html
And that's just one of about seven(? never counted them) option exchanges in Obamaland.
http://www.forbes.com/afxnewslimited/feeds/afx/2009/01/02/afx5875725.html
And that's just one of about seven(? never counted them) option exchanges in Obamaland.
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LOL Wayne - here is the options trading volume from the ASX for 2008! No major increases in this exchange this year despite the volatility.
Strange how November is missing, however on the daily data, December's figures starts from the 19th November
We do have 1000 spc here in Oz vs. 100 in the US - so that would shift the decimal point for comparison
Here's the source link: http://www.asx.com.au/asx/statistics/TradingVolumes.jsp
EDIT - Perhaps Dec08 hasn't been finalised yet...
Strange how November is missing, however on the daily data, December's figures starts from the 19th November
We do have 1000 spc here in Oz vs. 100 in the US - so that would shift the decimal point for comparison
Here's the source link: http://www.asx.com.au/asx/statistics/TradingVolumes.jsp
EDIT - Perhaps Dec08 hasn't been finalised yet...
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LOL Wayne - here is the options trading volume from the ASX for 2008! No major increases in this exchange this year despite the volatility.
Strange how November is missing, however on the daily data, December's figures starts from the 19th November
We do have 1000 spc here in Oz vs. 100 in the US - so that would shift the decimal point for comparison
EDIT - Perhaps Dec08 hasn't been finalised yet...
C'mon sails
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I pretty much agree with Sails' points.
The greeks are complex but as I'm getting to understand them better I'm starting to like them more.
On of my main reasons for not trading CFD's though is that I don't fully understand the counterparty risk involved. What happens to my money/CFD stock if the CFD provider goes belly up? I also don't fully understand the pricing process for them. (so I guess the whole thing seems a bit contrived and unreal).
The greeks are complex but as I'm getting to understand them better I'm starting to like them more.
On of my main reasons for not trading CFD's though is that I don't fully understand the counterparty risk involved. What happens to my money/CFD stock if the CFD provider goes belly up? I also don't fully understand the pricing process for them. (so I guess the whole thing seems a bit contrived and unreal).
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C'mon sails
Join the party over here
I did join for a while - but it's those dead-of-night hours - then trying unsuccessfully to sleep the next day. Now - if we didn't need sleep....
Anyway, TOS account is still open and ready to roll - so maybe will try again. In the meantime I'm working on ideas for the Oz market...
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I did join for a while - but it's those dead-of-night hours - then trying unsuccessfully to sleep the next day. Now - if we didn't need sleep....
Unlike you Im an animal ...hahaha!!!
Oh no...your scheming
Looks like Ill have to stay out of the Oz market, otherwise you'll take money from me..hahaha!!
I recently ran into old school mate of mine who seconded to Asia for the last 3 yrs as a MM (I know - our long life enemies), so Ill see what kinda info I can get out of him there!!!
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Haha Mazza!
Please do find out what you can from your mate. There is so much I would like to understand. I know they gotta make their crust and respect that. But I don't understand why they don't seem to want customers on the Oz market.
Recently I had a BHP combo order in and it was nowhere to be found in either option market depth windows (it was a 2 legged combo). So I rang the broker and they couldn't find it either. Usually at least one part of the combo shows up in market depth. So they kept me on hold for a while then came back to say it was all in order and that Timber Hill had it but wasn't displaying it (and I wasn't with IB). Both options were quite liquid on the day, so I promptly cancelled the order and legged it instead at a better price than I had on the spread - so outcome was fine.
I had previously thought that when a spread was entered into the system, that it was fair play for all the MMs for that stock (BHP has several). So it was mystifying how one MM was able to keep it to themselves.
Perhaps you could run this sort of thing past your friend! I will also ask my helpful broker sometime too to see if I can find out a bit more. I just like to know how things work.
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Haha Mazza!
Please do find out what you can from your mate. There is so much I would like to understand. I know they gotta make their crust and respect that. But I don't understand why they don't seem to want customers on the Oz market.
Recently I had a BHP combo order in and it was nowhere to be found in either option market depth windows (it was a 2 legged combo). So I rang the broker and they couldn't find it either. Usually at least one part of the combo shows up in market depth. So they kept me on hold for a while then came back to say it was all in order and that Timber Hill had it but wasn't displaying it (and I wasn't with IB). Both options were quite liquid on the day, so I promptly cancelled the order and legged it instead at a better price than I had on the spread - so outcome was fine.
I had previously thought that when a spread was entered into the system, that it was fair play for all the MMs for that stock (BHP has several). So it was mystifying how one MM was able to keep it to themselves.
Perhaps you could run this sort of thing past your friend! I will also ask my helpful broker sometime too to see if I can find out a bit more. I just like to know how things work.
Yeah sails,
Will definitely run it by him when I see him next. Will be poking and prodding to the max as im thinking of migrating to the Asian markets.
He MM'ed in HK for HK and Kospi markets, but should know enough about these Oz boys. It seems though that the priority for business is in Asian derivatives rather than Oz market.
Grinder
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mazza, i'd also be keen to hear how your mm mate goes about his buisness, especially on the kospi... still keen on moving over at some stage.
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Yeah will report back when I got some good stuff
Im off to HK for 4 months for some training
Will be testing the cr@p out of HK and Korean markets
Also still working on developing some infrastructure for options analysis - Never thought MS Access was such a b!tch!!
So til then I'll have to sign off here
Happy trading
imp:
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Yeah will report back when I got some good stuff
Im off to HK for 4 months for some training
Will be testing the cr@p out of HK and Korean markets
Also still working on developing some infrastructure for options analysis - Never thought MS Access was such a b!tch!!
So til then I'll have to sign off here
Happy trading
All the best, Mazza. Hopefully you can still check in on ASF from time to time. Otherwise, look forward to having you back again in a few months!
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