What to do on option expiration???

[sails]

As a general rule of thumb, spreads are tighter on the equivalent ETF. For instance you will get tighter spreads on QQQQ than on NDX, and tighter spreads on SPY than SPX.

Re moving through strikes, check out ETFs like QLD which is a leveraged QQQQ, or some emerging market funds like EEM, even some of the commodity based ETFs will move much like BHP. Even good old QQQQ or IWM themselves are as volatile as many Aussie blue chips.

Anyhoooz there for the taking if useful.

Cheers

Thanks muchly for the links and the above info. Will check out your suggestions early tomorrow morning when the US markets are trading so I can see what volumes and bid/ask spreads are like.

Looks like the info I got from CME differs somewhat to that from the CBOE - NDX opts are european and settle on the 3rd Friday. Must have made a mistake.

Cheers

 

[wayneL]

Jeez NDX spreads have tightened right up since I last looked... competitive with QQQQ now

And with NDX = 40 x QQQQ, brokerage is much cheaper on NDX.

Can be hedged with futures too.

hmmmm

 

[sails]

Jeez NDX spreads have tightened right up since I last looked... competitive with QQQQ now

And with NDX = 40 x QQQQ, brokerage is much cheaper on NDX.

Can be hedged with futures too.

hmmmm

LOL - might be of interest to you!

I did put a one lot butterfly in live and was surprised to get a fill near mid price regardless of the spread. Still don't know if they let you in, but play games when you need to get out!

I agree re brokerage - need far less contracts to do the same job. Yes, good for hedging, but haven't yet looked into that - will have to find out if it is available with TOS.

One other thing - do you find the spreads widen a bit during the middle of the US trading day? If so, do you know what times are generally best to get better fills?

 

[wayneL]

LOL - might be of interest to you!

I did put a one lot butterfly in live and was surprised to get a fill near mid price regardless of the spread. Still don't know if they let you in, but play games when you need to get out!

I agree re brokerage - need far less contracts to do the same job. Yes, good for hedging, but haven't yet looked into that - will have to find out if it is available with TOS.

One other thing - do you find the spreads widen a bit during the middle of the US trading day? If so, do you know what times are generally best to get better fills?

Yes a little, First half hour or so, they can be a bit wider is less liquid series.

 

[sails]

...Looks like the info I got from CME differs somewhat to that from the CBOE - NDX opts are european and settle on the 3rd Friday. Must have made a mistake.

Cheers

Hi Wayne, received an email from TOS with expiration reminder and confirms Thursday as last trading day for NDX but uses Friday morning's opening prices - that will be interesting - need a good crystal ball

February expiration is Friday the 15th. The last trading day for many cash-settled index options such as DJX, SPX, NDX and MNX options is Thursday, February 14th, with settlement prices determined by Friday morning's opening prints for the component stocks. The last trading day for the OEX, XEO, ETFs and all equity options is Friday, February 15th.

Got filled on another level of butterfly for NDX - good fill near mid price again. I'm a bit sus as most things that are too good to be true usually are - so will stay with one lots until I find where the gremlins are hiding

PS realised this thread has gone a bit off topic - perhaps the posts on US options should be separated?

 

[cutz]

Unbelievable at the moment. I currently have a number of option positions in BHP and usually have little difficulty in adjusting them - MMs normally respond quickly to option quote requests if they aren't making a continuous market - but the last two days have been a nightmare as the MMs have mostly disappeared en masse and no response to quote requests. Very difficult to trade when one has no idea of mid prices. I have heard they are supposed to respond to 80% of quote requests - but totally ignoring them is unacceptable IMO.

Hi Sails,

I’ve been trawling through the options pages and back in Jan I noticed you commented on the fact that market makers weren’t providing quotes on normally liquid aussie series, have things improved since then or is the situation in slow decline?

Also I was just wondering if pinning my efforts to the aussie market will end up being a lost cause due to this problem or do you reckon liquidity will slowly improve over the next couple of years.

I’m guessing that due to the market mayhem a lot of traders have bailed out exacerbating the situation.

 

[sails]

Hi Sails,

I’ve been trawling through the options pages and back in Jan I noticed you commented on the fact that market makers weren’t providing quotes on normally liquid aussie series, have things improved since then or is the situation in slow decline?

Also I was just wondering if pinning my efforts to the aussie market will end up being a lost cause due to this problem or do you reckon liquidity will slowly improve over the next couple of years.

I’m guessing that due to the market mayhem a lot of traders have bailed out exacerbating the situation.

Hi Cutz,

Yes, it was a nightmare at the time - I had a multi-level arrangement of sold butterflies (front month) on BHP in January this year. If you look at a BHP chart, you will see a volatile low on the 22nd Jan 2008 (3 days before expiry) which took the lower debit vertical into a potentially healthy profit. But the MMs would not quote that day and wouldn't respond to option quote requests either - and this went on into expiry on the 25th.

I heard that the MMs were fined for it, but it was generally thought that any fine was pocket money and the MMs would prefer to pay the fine than take risks with so much volatility. So, I guess it's going to have to be pretty volatile before they pull the quotes for days like that again.

I then quit the Oz options market and started trading the US. Loved the liquidity, the totally free, magical software from TOS, the wonderfully low fees (got the ticket charge removed) and the ease of ordering, but those night time hours were hopeless as I couldn't get enough quiet to sleep through the day and way too many interruptions. So it's a case of having to make it work in Oz.

I am now more prepared should it happen again and it is definitely more likely on volatile market lows and down gaps. If there are no quotes say first thing in the morning when the MMs are unlikely to quote and say I want to sell some long puts, I try to estimate IV levels. Eg. take note of IV levels of individual options (mostly using Iress option calculator) on market lows. It is likely to repeat that level next time it goes down and it gives an IV estimate to plug into the Iress calculator. Also, I look for any trades that have already gone through that are not crossed trades or tailor/custom-made trades to see what IV levels they are trading at. Obviously only a guide as we may not know if they were buying or selling. Anyway, then I place an order above my guesstimate if I'm selling and carefully tick it down if necessary - rarely do I buy on market lows when IV is exceptionally high!

I'm not finding it any worse at this time. If volatility is high, MMs are slow to begin quoting in the morning and then sometimes only quote one side which you have probably already noticed. However, they mostly respond to option quote requests which is something.

Whether the Oz market is ultimately OK for your needs I guess only time will tell. If circumstances change for me, I would very quickly go back to the US markets as they are so much better.

Hope this helps!

 

[cutz]

Thanks for taking the time for a detailed reply Sails,

Luckily for me I haven’t caught out yet, even with illiquid series like CSL, but the thought of being unable to close out days before expiry sent chills up my spine, that why your post caught my attention.

That spike on BHP you mentioned was not unlike the recent one on the 20th
of Nov, on that day I was playing around with XJO options, from memory the spreads were wide but at least they were on.

Hopefully we don’t see a repeat of what happened to you.

 

[Grinder]

Yep, sounds like we're all singing the same song. Only XJO for me now, with the occationally bank or mining stock to mix it up a bit.

 

[sails]

Thanks for taking the time for a detailed reply Sails,

Luckily for me I haven’t caught out yet, even with illiquid series like CSL, but the thought of being unable to close out days before expiry sent chills up my spine, that why your post caught my attention.

That spike on BHP you mentioned was not unlike the recent one on the 20th
of Nov, on that day I was playing around with XJO options, from memory the spreads were wide but at least they were on.

Hopefully we don’t see a repeat of what happened to you.

You are welcome, Cutz. I hope it doesn't happen like that again. But if it does, have a go at working out volatility. Slippage is obviously going to be bad, but it is likely you could still get out but probably at a worse price than normal. I wouldn't think MMs would turn their nose up at a profit on their side.

Even in high volatility, hopefully the MMs will at least fulfill their obligations. It puzzles me that they don't make the Oz market more competitive as so many Oz options traders only trade the US. You would think they would want the business.

Same goes for the ASX exchange fees - that $1.12 is a shocker for every single option trade and couple that with a fair whack of slippage on every trade - it doesn't make sense why they don't become more competitive... Oh well, they must have their reasons

 

[mazzatelli1000]

Just thought I would vent some anger on Aussie options even though I may be sidetracking this thread

I hate the fact that 1 option contract in Oz = 1,000 shares

 

[sails]

Just thought I would vent some anger on Aussie options even though I may be sidetracking this thread

I hate the fact that 1 option contract in Oz = 1,000 shares

But then Oz shares are generally lower priced than in the US - and US option fees aren't that cheap if you trade US lower priced stock. At least there is the opportunity to trade the likes of Google and other higher priced stocks. NDX options are another that is pretty good value for the fees paid due to it's high price.

Imagine how many contracts on the likes of TLS, LGL, etc - they are almost not worth trading now IMO because of their low price and the increased no. of contracts required to bring a similar profit as some of the higher priced shares (or at least used to be!).

If they dropped it back to 100 spc, can't see the ASX or brokers being willing to cut back on fees by one tenth - would probably see it as an opportunity to help themselves to a bit more - better left alone methinks

 

[mazzatelli1000]

If they dropped it back to 100 spc, can't see the ASX or brokers being willing to cut back on fees by one tenth - would probably see it as an opportunity to help themselves to a bit more - better left alone methinks

Ha!!
I agree - they would probably charge $1.12 per 100 spc.
The mods should bury this post otherwise it will give them ideas

When I first started trading options - I found the leverage on Oz options unbearable (I was so paranoid of being assigned :couch especially when trying to trade BHP options). I think that has stuck with me ever since I so may possess some unreasonable bias.:

BTW for anyone interested --- OptionsXpress will not be providing the service to trade ASX options and shares from the 31st December 2008.

 

[sails]

Ha!!
I agree - they would probably charge $1.12 per 100 spc.
The mods should bury this post otherwise it will give them ideas

When I first started trading options - I found the leverage on Oz options unbearable (I was so paranoid of being assigned :couch especially when trying to trade BHP options). I think that has stuck with me ever since I so may possess some unreasonable bias.:

BTW for anyone interested --- OptionsXpress will not be providing the service to trade ASX options and shares from the 31st December 2008.

LOL Mazza, assignment isn't all bad news - although it would depend on how savage the broker is on fees. It's great for debit spreads where assignment on the short means max profit without having to battle for a fair price

That's a shame about OX - but would explain why they weren't improving their system for the Aus market. There were no longer a primary broker for me, but good as a backup - will have to look elsewhere...

Thinking about contacting Iress to find out when they are planning to make combo trading online. I spoke to someone several months ago and they said it was on their list of planned developments, but they had other higher priorities at that time. This ability to place at least a two legged combo online was one of the biggest advantages that OX offered, IMO.

 

[Grinder]

BTW for anyone interested --- OptionsXpress will not be providing the service to trade ASX options and shares from the 31st December 2008.

That bites Have to change again, OX was my third in 2 years. Who has the cheaper fees (FT discount) with spreads online, no whistles & bells. Just the bid/ask is all I need. I know we have discussed this many times but any simmilar recommendations?

 

[mazzatelli1000]

LOL Mazza, assignment isn't all bad news - although it would depend on how savage the broker is on fees. It's great for debit spreads where assignment on the short means max profit without having to battle for a fair price

LOL, 3 years ago... the memories - I was so petrified.
sails I recall Commsec was EXTREMELY savage on the fees (because I legged in and out of spreads)

All that led me to move to US markets, however I am always assessing whether to come back to my homeland

That's a shame about OX - but would explain why they weren't improving their system for the Aus market. There were no longer a primary broker for me, but good as a backup - will have to look elsewhere...

Thinking about contacting Iress to find out when they are planning to make combo trading online. I spoke to someone several months ago and they said it was on their list of planned developments, but they had other higher priorities at that time. This ability to place at least a two legged combo online was one of the biggest advantages that OX offered, IMO.

I have only heard of Morrision Securities and Trader Dealer from some folk who trade in Oz

 

[Grinder]

thanks mazz, have'nt heard of Morrison so will give em a buzz. Already spoken with IB, Commsuc, TD & Etrade. Etrade won't let retail traders trade the Index, go figure.

 

[cutz]

Hi Mazza,

If you don't mind me asking which broker are you using?


Grinder,

For your info, morrisons seem good on pricing but when i spoke to them last i was advised that with naked shorts you need to phone through, if that's your cup of tea. Gee what sort of outfit is etrade if you can't even do the index.

 

[mazzatelli1000]

Etrade won't let retail traders trade the Index, go figure.

Hi Mazza,

If you don't mind me asking which broker are you using?

For your info, morrisons seem good on pricing but when i spoke to them last i was advised that with naked shorts you need to phone through

So the search continues for a good broker of Oz options

I cannot understand the reason why E*Trade will not provide index options yet they will allow naked calls and puts on equities presume?

Cutz,
IB and TOS are my main brokers.

 

[Grinder]

frikin love TOS but it's US. Traderdealer is who I'm leaning towards, the others have yet to tick all my boxes... might have to drag my butt back to comsuc:crap: