Options in 2018 and beyond

[wayneL]

Things have changed a little bit since I last wrote about options, yet some things haven't.

This thread is specifically about oz options... with this disclaimer, I haven't traded Aus options for a helluva long time now, having been only semi active in the US maeket for the last few years

So this is as much about learning for me.

Anyway, I have a trade client, trading some pretty big size on the market, without any knowledge of Greeks. I suggested some of the option Canons for her... and she is wading her way through McMillan's tome.

Can't wait for her to get onto Cottle.

Anyway, I was there on Friday, and she was bitching about being rogered by the MMs in the current route.

I tried to hide my knowing smile, contest risk is a huge consideration in any market *especially* our market.

So, maybe we can get some discussion here on *viable* strategies in our market, sans the marketing BS of "share renting" and other such absurdities.

 

[Sharkman]

in the super six (ANZ, BHP, CBA, NAB, RIO, WBC) it is actually not that bad. the spreads that the MMs show the market will typically look frighteningly wide even in these liquid names, but i think they're just being opportunistic in case they can catch out someone who doesn't know any better (or who is desperate for a fill) and is simply hitting the bid or the ask. and they do succeed, occasionally i'll be watching a particular option and i'll see an order get filled way on one side of the spread (if not at the bid or ask itself).

however if i try to work the spread by sticking in an order slightly on my side of the mid (i used to just start at the mid itself but occasionally i would get insta-filled there, leaving me thinking i could've got a slightly better price as maybe an MM was looking to offload deltas, so now i start a few ticks my side just in case) then moving it in a tick every few seconds, i often do get filled at the mid or 1 or 2 ticks their side. usually a couple ticks their side is where i draw the line and i'll just take the order off the market if i don't get filled within a few seconds at that level.

in Aust there is no cancellation fee (not sure if there is one on US exchanges) so you can place an order then take it off a few seconds later if you don't get the fill you're after and try again some other time, as many times as you like, at no cost.

on occasion i do try to make a trade in some of the less liquid but still fairly large cap names (eg. CIM, QBE, WOW, WPL) but these are noticeably less likely to get a fill within 2 ticks of the mid. CSL is a strange one that despite its massive market cap, to my eyes it's nowhere near the super six when it comes to options, from my experience its options are incredibly illiquid and good fills hard to come by. i suppose CSL tends to get predominantly held in long term portfolios (including mine) and it just doesn't get traded often enough. which is frustrating as sometimes it has these big runs and goes too far, too fast. so i want to hedge my stock position by maybe using a bear put spread, but can't get a decent fill so i take the order off, only to watch my unhedged stock position then get belted when it pulls back to the trendline, as has happened the last 2 months.

another thing that i was totally unaware of (i knew IB supported them, but i didn't know the ASX also supported them, i had thought the feature was primarily for US exchanges) was combo orders, until someone on these forums (cutz i think) mentioned that the ASX did in fact support them a few months ago. so i've only been using them for a few months, but so far i've gotten some reasonably decent fills doing vertical and calendar spreads with those (again usually within 2-3 ticks of the combined mid) as for those strategies the MM is taking on less deltas for the whole combo vs an individual leg so perhaps that's why they're more partial towards making such trades.

small delta/delta neutral 1 by 2 ratio put spreads which is a strategy i do use quite a bit (did one in BHP a few weeks back, bought Nov $34 puts, sold 2x Nov $32 puts at zero cost) also seem to get good fills using combo orders, presumably because of the minimal delta the MM has to take on. have not tried doing combo orders for strategies like risk reversals or collars where both legs have delta in the same direction yet.