Options trading in Australia

skies85 · 2 March 2018

Hi all,

Seeking a bit of help for those who have experience with options trading in Australia. I have been trading options in the U.S. for about two years now, originally through OptionsXpress which has now become Charles Schwab. I'm fairly comfortable with options trading basics and have traded with some success, Covered Calls, Collars, Naked and Protected Puts along with other spread strategies (Iron Butterflies, Iron Condors, Credit/Debit Spreads etc.)

It's been a hell of a learning journey to get to this point, and I feel like I'd like to get exposure with Australian companies as well, to complement my normal share trading I do here (I use CommSec as my broker FYI)...

Basically, what is the best brokerage for trading options (and equities) in Australia? I have done a lot of reading which suggests that Interactive Brokers is the way to go, but what is the general consensus on this? I would love it if all of my investing (local and international) could take place in the one platform, like IB, but I'm not sure if there's anything else out there. Can anyone give me some background as to what's involved to set up an account? (i.e. how much capital/what the pricing structures are)

I'm keen to start trading Australian options, and I'm thinking that surely there's a better platform that CommSec's options trading where you pay brokerage of $34.95 per trade...also, are the same types of strategies that I have been using available to trade in Australia?

Would love to hear from anyone who trades using IB, and has any advice on the Australian options trading space more generally.

Thanks in advance

Sharkman · 3 March 2018

i trade ASX options on IB. in past years i would have said a definite recommend on IB, but after the switch from IB LLC to IB Australia (which thankfully has not happened to me yet since i trade thru a corporate trust) i'm not so sure, until we know what protection we'll get under the new entity ie. in the event of broker failure do we still get SIPC protection (up to $500K USD across the whole portfolio) or just the AFG guarantee (up to $250K AUD of only the cash balance), given that IB uses the nominee account model rather than CHESS.

as for ASX options trading, well you can forget about iron condors, butterflies and the like IMHO. even with IB's low commissions, crossing all those bid/ask spreads will cripple you. sometimes even vertical spreads and collars will be troublesome to execute as what often happens is you get a decent fill (close to the mid) on the leg that's nearer the money, but when you try to get the other leg filled, they won't fill you until you cross most (or all) of what will usually be a very wide bid/ask spread. as an example i was looking at some CBA (which should be one of the most liquid option underlyings in the market) OTM puts earlier this week and the bid/ask was something like 0.55/0.70. for a liquid security like that it really should be more like 0.62/0.64, but in our market, it's not.

personally i mainly stick to covered calls and cash covered puts, but i'll do the occasional vertical/calendar/diagonal spread if there's a view i feel strongly about or if i see narrow spreads on contracts i want to trade. condors and butterflies are definitely out of the question though!

cutz · 13 March 2018

Sharkman said:
sometimes even vertical spreads and collars will be troublesome to execute as what often happens is you get a decent fill (close to the mid) on the leg that's nearer the money, but when you try to get the other leg filled, they won't fill you until you cross most (or all) of what will usually be a very wide bid/ask spread

Why are you legging your spreads ?

From personal experience much less slippage placing order as a combo.

Sharkman · 13 March 2018

cutz said:
Why are you legging your spreads ?

From personal experience much less slippage placing order as a combo.

are you referring to spread orders, where you might place an order to pay $1 for both legs of a 30-35 bull call spread in XYZ combined? or conditional orders where you put in a bid at $1.50 for the 30 calls and a second order to sell the 35 calls at 50c, which only activates once the first one gets filled?

i was not aware that spread orders are supported for ASX options (i thought only US exchanges support those), and even if they are, i'm not sure i'd be able to use them since i don't subscribe to IB market data (i access live option prices for free instead, via my CHESS brokerage account that i use for the buy & hold component of my portfolio).

i like to manually work the spreads as much as i can. if say the market is showing 1.00/1.10 and i want to sell, i start by offering 1.095 and move in a tick every few seconds from there until i get filled or it gets to a level that i don't find acceptable. i figure i might as well be opportunistic - sometimes i actually get filled on my side of the spread (maybe it's another retail trader, maybe an MM wants to neutralise their delta). it only happens rarely, but often enough that it's worth a shot.

cutz · 14 March 2018

Sharkman said:
are you referring to spread orders, where you might place an order to pay $1 for both legs of a 30-35 bull call spread in XYZ combined? or conditional orders where you put in a bid at $1.50 for the 30 calls and a second order to sell the 35 calls at 50c, which only activates once the first one gets filled?

Yeah, spread orders also referred to as Tailor Made Combinations on the ASX, up to four legs. The IB platform will calculate the Indicative Combination price based on the individual legs i.e. Bid/Mid/Ask. When you place your order on the correct side of midpoint a market maker may respond with a counteroffer, often a combo will trade at or just beyond midpoint, the combined Delta of a Combo may be more favourable to a MM to hedge off hence the better pricing.

I've have more losers than winners legging spreads, crossing the mid on the individual legs and slippage when the market moves the other way doesn't add up.

Sharkman · 14 March 2018

ok thanks for that, i didn't know that sort of thing was offered on ASX options. i'll have to look into it, though i never saw the functionality for that sort of thing on their mobile app - do you need to use TWS to place these sorts of orders?

this could make ASX spreads somewhat viable again if it is indeed possible to get spreads done at close to the combined mid, it's a good point regarding the net delta of the spread possibly making it seem more appealing to an MM to fill.

cutz · 14 March 2018

Sharkman said:
ok thanks for that, i didn't know that sort of thing was offered on ASX options. i'll have to look into it, though i never saw the functionality for that sort of thing on their mobile app - do you need to use TWS to place these sorts of orders?

All Aussie bank brokers can place combo orders ( usually over the phone ) although commission is through the roof, you can view orders on WebIress which most Aussie banks offer but its extremely cumbersome. TWS is a winner hands down, well worth the small monthly fee.

Sharkman · 15 March 2018

these order types can only be placed thru TWS? they can't be done using IB's mobile app?
i can't use TWS unfortunately, have to use the mobile app as i'm trading whilst i'm at work and would probably get in trouble if i used the company's computers to connect to TWS.

cutz · 16 March 2018

Sharkman said:
these order types can only be placed thru TWS? they can't be done using IB's mobile app?

Combos are best placed via TWS which has "Request Quote" function. Prior to placing a combination order you need to request quotes on the individual legs ( if they aren't already displayed ) to properly calculate the combination price. Never ever place a combination order without first obtaining quotes and checking / double checking entry price and legs are going the correct way.

I also use TWS Mobile on my smartphone,mainly for closing out single legs, it is capable of placing Combination orders but nil "Request Quote" function. Not sure about TWS mobile for iPad, it may or may not have the Request Quote function ?

Sharkman · 8 May 2018

cutz said:
Combos are best placed via TWS which has "Request Quote" function. Prior to placing a combination order you need to request quotes on the individual legs ( if they aren't already displayed ) to properly calculate the combination price. Never ever place a combination order without first obtaining quotes and checking / double checking entry price and legs are going the correct way.

I also use TWS Mobile on my smartphone,mainly for closing out single legs, it is capable of placing Combination orders but nil "Request Quote" function. Not sure about TWS mobile for iPad, it may or may not have the Request Quote function ?

hey thanks again for your posts on this thread, i finally got around to figuring out how to do it on the TWS android app and tried booking some trades using combo orders today - mind blown. i had no idea trading spreads was even possible on the ASX, but it worked amazingly well. did two vertical spreads today and got insta-filled right on the mid for both.

the terminology in TWS was a bit confusing though. i traded a couple of bear call spreads but TWS said i was "buying" a bear call spread at a negative price. a bit counter-intuitive as i normally think of it as selling a call spread, but the correct amount was credited to my account in the end. just something one has to get used to i guess.

interesting that the position is listed on the portfolio list as a "bear call spread" though, not as 2 separate entries for short X calls at Y strike, long X calls at Z strike. if for whatever reason one wanted to close out one leg of the spread, do you just put in a single legged order and it will automatically net it off and convert the spread back to a normal single legged trade representing the remaining open leg?

cutz · 9 May 2018

Sharkman said:
hey thanks again for your posts on this thread, i finally got around to figuring out how to do it on the TWS android app and tried booking some trades using combo orders today - mind blown. i had no idea trading spreads was even possible on the ASX, but it worked amazingly well. did two vertical spreads today and got insta-filled right on the mid for both.

the terminology in TWS was a bit confusing though. i traded a couple of bear call spreads but TWS said i was "buying" a bear call spread at a negative price. a bit counter-intuitive as i normally think of it as selling a call spread, but the correct amount was credited to my account in the end. just something one has to get used to i guess.

interesting that the position is listed on the portfolio list as a "bear call spread" though, not as 2 separate entries for short X calls at Y strike, long X calls at Z strike. if for whatever reason one wanted to close out one leg of the spread, do you just put in a single legged order and it will automatically net it off and convert the spread back to a normal single legged trade representing the remaining open leg?

No Worries,

Yeah negative pricing is slightly confusing but it doesn't take long to get accustomed to it, with the desktop version you can double click on the combo and the descriptions will come up with the outcomes on the individual legs to buy and to sell, always check this just to be sure. If you want to get rid of the negative combo price just set up the same combo on the quote panel with the legs switched.
Closing out a single leg of your spread will wipe the combo from your portfolio and leave you with the remaining leg.

Sonny S H Tan · 25 February 2019

skies85 said:
Hi all,

Seeking a bit of help for those who have experience with options trading in Australia. I have been trading options in the U.S. for about two years now, originally through OptionsXpress which has now become Charles Schwab. I'm fairly comfortable with options trading basics and have traded with some success, Covered Calls, Collars, Naked and Protected Puts along with other spread strategies (Iron Butterflies, Iron Condors, Credit/Debit Spreads etc.)

It's been a hell of a learning journey to get to this point, and I feel like I'd like to get exposure with Australian companies as well, to complement my normal share trading I do here (I use CommSec as my broker FYI)...

Basically, what is the best brokerage for trading options (and equities) in Australia? I have done a lot of reading which suggests that Interactive Brokers is the way to go, but what is the general consensus on this? I would love it if all of my investing (local and international) could take place in the one platform, like IB, but I'm not sure if there's anything else out there. Can anyone give me some background as to what's involved to set up an account? (i.e. how much capital/what the pricing structures are)

I'm keen to start trading Australian options, and I'm thinking that surely there's a better platform that CommSec's options trading where you pay brokerage of $34.95 per trade...also, are the same types of strategies that I have been using available to trade in Australia?

Would love to hear from anyone who trades using IB, and has any advice on the Australian options trading space more generally.

Thanks in advance

Hi,
I am also interested in setting up a Trading Account in Australia to trade US Options. I use Interactive Broker HK and TD Ameritrade SG as I was residing in Malaysia. I am relocating to Australia and plan to be Australian Tax Resident in due course. Can you share your experience with the setting up of your trading account Australia.

kellettgp · 16 July 2021

Hi guys,
I know very little about options just basics. I have a commsec account and I am allowed to trade options and warrants via their platform. However, when I view options or warrants related to a particular stock or index I see either no options or warrants being offered or maybe one at a ridiculous price and in the opposite direction of the technical analysis for the stock. i.e. I don't really see any liquidity? Is it just commsec platform not showing the full option market??? What am I not understanding with the australian options market?

pughole · 11 September 2021

I trade options on Commsec from time to time. The liquidity is hopeless - that's just the Australian options maret. Quite often I have to call the options trading desk to get an indicative price - MM - which I then can see on the commsec site. That is, until I do that there are no asks or bids showing at all - and this is for the big 4 banks or bhp etc!

Options trading in Australia

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