Options Mentoring

[chops_a_must]

I'm not so sure.

If the option only has intrinsic value left in it, can't you be exercised at the end of the day, and have the dividend stripped?

I'd be looking at closing the position at the end of the day... but that's just me, and I'm not totally sure about this...

 

[cutz]

Check out ANZ6B, you will see what i mean, give or take a few cents,

cutz.

 

[sails]

Thanks for the reply elbee,

So the following should happen, stock price should drop, call should remain stable therefore losing some intrinsic value and picking up some time value,

I guess a couple of clues should have pointed me to the fact that the underlying was going ex div, the fact that an ATM call was trading with intrinsic value only with a month remaining, I thought that was quite strange,but didn't look into why.

When I set up the position a couple of weeks ago I punched the figures into Hoadley’s, the short put leg was showing an IV of 85% and the long call was showing an IV of 37%, I was quite chuffed at this thinking I scored the call on the cheap but looking back it was trying to tell me something else, (i.e. ex div shortly)

cutz.

Looks like you have it sorted, Cutz . Yep, cheap calls and expensive puts are a clue to dividends coming up. Such a large IV differential between puts and calls certainly gives it away. Once the dividend is entered into Hoadley, it gives a different picture. Box trades look like a risk free trade to the unwary prior to dividends - but the risks lurk in the dividend and potential assignment.

Depending on the rest of your position, you could consider exercising your long call before close today and pick up the dividend (and possibly the franking credit depending on your circumstances) - but would then have to be willing to take the downside risk on the shares. Also, need to know your brokers fee structure on exercised options as it may not be worth the effort. As you probably know, no use trying to hedge with a close-to-the-money put as the dividend is priced into the put.

Also, if you have WebIress, click on the Analytics tab, then Option Valuation. In the middle section, you can change the volatility, move Todays Date backwards and forwards. Underlying Price can also be changed, but when the market is trading it keeps defaulting to the current price. Changing price is easier to play with when the market is closed. Anyway, when the changes are made, the option value changes in the top left hand box "Value". It's a quick way to get an approximate price - although I feel Hoadley is still more reliable overall.

 

[sails]

I'm not so sure.

If the option only has intrinsic value left in it, can't you be exercised at the end of the day, and have the dividend stripped?

I'd be looking at closing the position at the end of the day... but that's just me, and I'm not totally sure about this...

Chops, not if it is a long call - he stays in control of exercise until expiry day when most brokers automatically exercise all ITM long options.

 

[cutz]

Thanks for all your inputs guys,

I decided to close out the position and take the profits off the table, I felt a little uncomfortable holding a position through it ex dividend, I will observe from the sidelines to see what happens to it tomorrow.

Sails, thanks for the tips, very helpful as always.

Unfortunately comsec charges 0.35% on assignment/exercise, I learned the hard way with covered calls on CSL some time ago, I was slapped with assignment and a hefty brokerage bill and a valuable lesson on covered calls

cutz

 

[sails]

With ANZ going xdiv tomorrow and NAB the next day, it's probably a timely reminder for anyone with in-the-money short calls to consider closing out before xdiv day. There is a high risk of being assigned later today (ANZ) and only find out about it tomorrow morning. This means that as a short stock holder one is liable to pay the dividends

Even if in a bull call spread, the long calls don't offer any real protection from having to pay the dividend. If in a bull call spread where both strikes are in-the-money, it usually pays to either close both out the day before OR exercise the long calls which means one is long stock on xdiv day and will receive the dividend. By exercising the long call and being assigned on the short closes the position and neutralises the dividend. BUT check your brokers fees on exercise/assignment - could make a difference to how this is handles...

One catch to the above is if for some unusual reason the short calls aren't assigned - then one would be long stock the next day and is no longer the limited risk position offered by the original bull call spread.

I normally use the rule of thumb that if both strikes are both deeply in-the-money, it is probably OK to assume assignment of the short call. If they are closer to the money and if there is still a fair bit of time value, then may be best to simply close out.

Hoadley's OSET has a tab for for working out the probability of early exercise. Make sure imputs include correct dividend amount and date, IV, etc, etc. Useful as a guide, but personally, I usually like to ensure a bit extra as a buffer.

 

[sails]

Thanks for all your inputs guys,

I decided to close out the position and take the profits off the table, I felt a little uncomfortable holding a position through it ex dividend, I will observe from the sidelines to see what happens to it tomorrow.

Sails, thanks for the tips, very helpful as always.

Unfortunately comsec charges 0.35% on assignment/exercise, I learned the hard way with covered calls on CSL some time ago, I was slapped with assignment and a hefty brokerage bill and a valuable lesson on covered calls

cutz

Congratulations on a profitable trade, Cutz A wise thing to do IMHO and you will most likely learn as much as if you were still in the position as you have had real money in that trade. There will be many more opportunities down the track...

I was with AOT when Commsec bought them out. I didn't stick around with Commsec because of that wicked .35% - AOTonline used to charge a flat rate of $30 for assignment - massive difference! I wrote to them explaining that if I had a narrow bull call spread on a high priced stock, it would cost more in fees than the max profit in the spread. But they were not interested - I guess just happy to fleece any newbies that come along...

 

[cutz]

Thanks Sails,

I keep promising myself that I have to change brokers, just got to get outside my comfort zone of dealing with an Australian firm.

 

[sails]

Thanks Sails,

I keep promising myself that I have to change brokers, just got to get outside my comfort zone of dealing with an Australian firm.

Cutz, I tried IB, but found their platform very confusing with Oz options and their customer service didn't seem to know much about Oz options either. Maybe I was too quick to give them a go before they got everything up and running properly. They didn't have any greeks available for Oz options at that time.

I currently use an Aussie broker Trader Dealer (Rob is the options broker to talk to there - although he goes on holidays soon for a about three weeks) and also have an account with OX as a backup. OX has the better fees if on frequent trader status, but it is nice to have someone pick up the phone straightaway with TD in the rare event it is required. OX would often just take my name and number and get a broker to call back. Too bad if it was urgent - like trying to close a trade and losing profits coz their platform has a glitch!

TD exercise fees are same as their stock fees and I'm on a good rate with them but it's still a bit expensive when compared to OX. But then OX doesn't have WebIress and I don't think I could Oz trade options without it now. I usually do enough trades each month so I don't pay extra for WI. So, if it's any help, that's the pros and cons with the two I use.

 

[cutz]

Yep,

I use Webiress with comsec and its quite good, so at this stage I’m leaning towards setting up an account with OX and also keeping comsec up and running just so I could still use Iress to push through trades that don’t run the risk of assignment.

I like the look of IBs Traderworkstation with all the Greeks and put/calls nicely laid out on one screen but a poster put up a question on why the Greeks weren’t showing and I’m not sure how he went, also as you pointed out its nice to be able to pick up the phone and get through to someone who knows what’s going on.

Cutz.

 

[Grinder]

How can we get the best of everything? like the way it is in the US, with a broker like TOS all in one. Any ideas?

With commsec for their customer service which is always good for ops & free pro trader 2 (pissing me off lately though) but the excuberant fees compared to OX deters me. Mostly trade through OX eventhough they seem to have only 2 guys working the desk, who are never their, and without the greeks it makes it tough, so have impliedvolatilitytracker site with hoadleys to assist. Spoke with IB, but it was like pulling teeth to get basic questions answered.

Now that I've had a whinge and trashed everyone, feel much better, but still in same predicament. Is traderdealer the answer Sails? I remmember there was some drama after opes prime went down.

 

[mazzatelli1000]

How can we get the best of everything? like the way it is in the US, with a broker like TOS all in one. Any ideas?

With commsec for their customer service which is always good for ops & free pro trader 2 (pissing me off lately though) but the excuberant fees compared to OX deters me. Mostly trade through OX eventhough they seem to have only 2 guys working the desk, who are never their, and without the greeks it makes it tough, so have impliedvolatilitytracker site with hoadleys to assist. Spoke with IB, but it was like pulling teeth to get basic questions answered.

Now that I've had a whinge and trashed everyone, feel much better, but still in same predicament. Is traderdealer the answer Sails? I remmember there was some drama after opes prime went down.

Ahhhhh all the same reasons that led me to trade options in the US and give up on Oz

IB was never a broker to be obtaining help from like TOS. Low cost, learn to use it yourself sort of broker.

OX is terrible - they got a few Customer Rep guys whose job it seems is to answer all your questions in one sentence

 

[sails]

How can we get the best of everything? like the way it is in the US, with a broker like TOS all in one. Any ideas?

With commsec for their customer service which is always good for ops & free pro trader 2 (pissing me off lately though) but the excuberant fees compared to OX deters me. Mostly trade through OX eventhough they seem to have only 2 guys working the desk, who are never their, and without the greeks it makes it tough, so have impliedvolatilitytracker site with hoadleys to assist. Spoke with IB, but it was like pulling teeth to get basic questions answered.

Now that I've had a whinge and trashed everyone, feel much better, but still in same predicament. Is traderdealer the answer Sails? I remmember there was some drama after opes prime went down.

Oh yes, if only we could have the best of everything for Oz options - but realised is probably not going to happen for a long time yet. Oz markets are probably just too small.

Yes, I found IB customer service very difficult. They tried hard to help, but it was frustrating on my part. They only seemed to have their general customer service people available during Oz trading hours - couldn't get the specialist people who are probably only available during US trading hours.

I don't know if TraderDealer is for everyone - works for me, but no bells and whistles either - just excellent customer service. If WebIress ever get round to adding the ability to enter option spreads on line (even two legs as OX already do), it would make it much easier. At this stage I email option spread orders to TD - they could also be phoned. Once they enter it into the system, they give me the code for that combo, and then I control that order myself eg. can amend price, amend quantity, delete and re-enter later if I want to as I would for any other order. One of the cool things is that you can then bring up a market depth window to see if anyone else is trading that same spread.

TD was bought out by MDS finance after the Opes Prime debacle - hopefully MDS are doing OK! Funds are held in a bank CMT, so they should be OK.

I would much prefer to trade US options due to all the benefits of trading with TOS and the cheaper fees, however, present circumstances have made it almost impossible to work at night and sleep in the day, so I'm stuck with the Oz market at the moment and I personally feel TD is the best around for my needs anyway.

 

[Grinder]

Thanks for your insight Sails, will continue to push on with my predicament and debate the pros & cons of each broker till I eventually convert to the US.

 

[sails]

Thanks for your insight Sails, will continue to push on with my predicament and debate the pros & cons of each broker till I eventually convert to the US.

Yes, it's a trade-off what ever we do. Trade the US and put up with sleepless nights and the effects that has on lifestyle OR put up with the difficulties in the Oz market and attempt to keep fees under control.

All the best with your deliberations...

 

[cutz]

I’m with you sails, aussie options during the day. I don’t think I could handle the nightshift; I probably fall asleep in front of my computer.

I am interested to here from the guys and girls who trade through the night and how those sorts of hours are handled.

 

[mazzatelli1000]

I’m with you sails, aussie options during the day. I don’t think I could handle the nightshift; I probably fall asleep in front of my computer.

I am interested to here from the guys and girls who trade through the night and how those sorts of hours are handled.

The nightshift defnitely has its challenges, but considering the timeframe of the option spreads I utilise, I feel it does not require me to sit in front of my computer all night.

I usually wake up 4:30a.m. for my daily exercise and so will have a look at how the US market is panning out and make any trades if my entry criteria is satisified, as usually around this time it is the afternoon session of trading.

Also, before I goto bed I will look at the index futures before open and assess whether I will need to stay up to manage etc.

So there are grudge days where you will feel extremely tired, but it is not every single day.

I have had to give up intra day trades on the /YM as I simply cannot stay awake all night.

Always been considering the Hong Kong, Singapore and Korean markets, but I dont know much about them and data is not readily available like US.

 

[Grinder]

Always been considering the Hong Kong, Singapore and Korean markets, but I dont know much about them and data is not readily available like US.

Same. Spoke to a rep at IB about Kospi ops, was'nt able to get much relevant info though.

 

[cutz]

Hi all,


Does anybody have any use for those 1point strike price options, is it some
sort of quasi futures type contract ? or am I way off the mark. What I am looking at the moment on the screen is XJO1O, the Nov call which has an open interest of 203, only 20 contracts were traded last Friday and 1 last Thursday, it doesn’t seem to be very liquid so I was curious on wide the spreads on offer would be and if they would closely resemble the ASX200 index at the time the spread was requested.

Thanks in advance.

 

[sails]

Hi Cutz - check out this page on the ASX site http://www.asx.com.au/products/options/lepos.htm