Best Thread The Options edge (Writing Vs Buying)

Profitaker said:
Exactly. For that very reason I wouldn't have thought any broker would entertain giving anybody 3 days to put right a margin call. I suspect it's another extension of the truth from the master Bulls***er himself.
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I don't know about the UK, but in the Netherlands it's quite normal that a grace period of 5 days is given. Also sec rules allow a grace period. In case of extreme events this may be a risk for the broker, but as a trader I think it's a good feature. Most trading accounts pay only little interest. With a grace period it gives opportunities to park excess money on a savingsaccount with much better interest rates. Brokers don't like it however if you really make use of this feature. Also when trading long/short strategies over several accounts a grace period is handy to balance accounts. To me a grace period is the rule and it's IB that breaks the rule.

I think the risk for the broker should not be exagerated however. Most brokers have a clause that allow them to diverse from the rule at will. In case of extreme moves and when execution value of an account approaches 0 they surely will take use of there liberties.

grtnx
Wilco
 
Profitaker said:
General consensus seems to be no inherent edge either way (Writer Vs Buyer), would that be a good summary for this thread ?
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Put selling, I'd say, can give you an edge. Buyers of puts often would like to see them expire worthless, since it means their stock position is safe. US investors will buy puts instead of using stops so as to hold on to the security to get a better capital gain rate. This skews the price of puts in the favour or the seller.
 
Silent.Trader said:
I don't know about the UK, but in the Netherlands it's quite normal that a grace period of 5 days is given. Also sec rules allow a grace period. In case of extreme events this may be a risk for the broker, but as a trader I think it's a good feature. Most trading accounts pay only little interest. With a grace period it gives opportunities to park excess money on a savingsaccount with much better interest rates. Brokers don't like it however if you really make use of this feature. Also when trading long/short strategies over several accounts a grace period is handy to balance accounts. To me a grace period is the rule and it's IB that breaks the rule.

I think the risk for the broker should not be exagerated however. Most brokers have a clause that allow them to diverse from the rule at will. In case of extreme moves and when execution value of an account approaches 0 they surely will take use of there liberties.

grtnx
Wilco
Click to expand...


interesting topic btw.

Is there any more option traders out there that are given this grace period? Or is it just a few that are offered this condition ?

How does one qualify for this condition of 1-5 days grace? :rolleyes:


hungrybelly
 
Another consideration on grace periods is the potential negative impact on a trader.

Somebody who went short a large amount of DOTM puts on FTSE about 2 weeks ago could well have had a margin call on Friday 12th. with FTSE closing at about 5912. Who would be worse off the trader who was forced to close out at that point or the one who has held on but is now at the end of his grace period with FTSE at about 5660. I suppose it depends whether he has the money (and stomach) to stump up the cash now and ride it out for a bounce next week (assuming they weren't may expiry) and of course whether the bouce comes.

Gareth
 
No doubt it is irrelevant that the author of the article was educated at the University of Las Vegas? ;)
Fact is often stranger than fiction

fildi101 - Interesting point. Applies only to stock options, presumably? Quantifiable?
 
mtbelly

from the article said:


By nature, options are a depreciating asset.

It should be obvious by now that selling options provides traders with an advantage over buyers.
Click to expand...
Most novices believe that time decay is an edge in favour of the option seller. Experienced option traders know this to be complete pish.

I couldn’t find any reference to margin in the article. Why would any broker would stump up margin cash to their clearing firm and not recover it from their client for 5 days ? What exactly is in it for the broker, except maybe making a few basis points profit in interest charges, when the risks of client default are huge ?

Still, I don’t see being given 5 days grace as an advantage – on the contrary, margin requirements are there for good reason.
 
So profitaker, given that there is no edge inherent in writing or buying, which do you prefer?

1/ Write
2/ Buy
3/ Spread
4/ Any of the above as the situation warrants

Cheers
 
I prefer to write, conditions permitting. I reluctantly buy, and rarely spread.

So I guess the answer to your question is 4).
 
Profitaker said:
I prefer to write, conditions permitting. I reluctantly buy, and rarely spread.

So I guess the answer to your question is 4).
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Just like Bulldozer he prefered to write too! :LOL:


He is now posting at TT

hungrybelly
 
mtbelly said:
Just like Bulldozer he prefered to write too! :LOL:


He is now posting at TT

hungrybelly
Click to expand...

Do you always refer to yourself in the third person, Bulldozer?

Thanks for that info, we can all avoid TT now.
 
Profitaker said:
Quite a stark question actually.

I suggest everyone answers.....
Click to expand...

Just for the record, what you said pretty much applies to me too.. but might spread a bit more often... 4/

Cheers
 
Wal,

Your comments will make others visit TT with more interest now i think!

I hope your trading is doing good.


Rgrds
hungrybelly
 
fildi101 - Interesting point. Applies only to stock options, presumably? Quantifiable?
Click to expand...

I haven't quantified it personally, though I suppose an easy way would be to measure the stock closing price at options expiry with the Max Pain figure (the theoretic price that most options expire worthless).

From my own observations, the stock tends to close higher than max pain, which I guess would support my theory, though it is just a casual observation... I've never done a detailed study..

It would be tempting to put together a little(!) script that calculates the max pain figure and compares the prices across the stock universe..... Hmmm.

OH and yes, I guess it would just apply to stock options, (and maybe etfs like the QQQ's?), since futures traders wouldn't be expecting to hold for the lower CG rate.
 
Hello friends & members,

I was just wondering, is there any options traders on this forum? If so, could some of you guys please show a few of your trades on these boards? It would be a great help to me as a newbie and also for other newbies. But please keep it simple.

Many thanks

Mtbelly
 
Profitaker said:
No option traders on here mtbelly.

Try elsewhere.
Click to expand...

Hello profitaker,

Yes, i think you are right about that. :rolleyes:

It seems that the real options traders are found at www.tacticaltrader.com

Is there any other?

Thanks for your advice.



Hungrybelly
 
Last edited:
mtbelly said:
It seems that the real options traders are found at www.tacticaltrader.com
Click to expand...
Yes, you're quite right - that is the home of real option traders.

Much more informative discussion over there.

Backed up with real options trading.

Sorry to see you go....

Bye bye.
 
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