IG Daily options??

[jhaughey]

Hello,

Does anybody here have much experience using IGindex's Daily Forex options? What benefits and drawbacks have you found when using them... I'm slowly finding my groove so to speak, and was attracted to them for intraday trading. My market entry timing is still a little bit hit and miss, so I see them as a good way of staying the distance on short term moves whereas I'd get stopped out with a regular up or down bet.

Thanks,
PS, great site....

 

[glasshopper]

I woukdn't go anywhere near ANY of IG Indexes daily options or for that matter, any of their option products. They are all a complete rip off.

ANY OF THEM

including their binaries, ladder, or dailies which they promote very hard and if you trade them you will see why.

The reason, well they have options traders who hve to settle their book at any given moment. Since CBOE don't offer one day options IG index are the counter party and thus have direct exposure to risk. If the market moves against them comapred to what their book looks like, they will deliberatly 'fix' the price of the option so that they are back in the mney themselves.

so if you are trading with them and they are on the other side of a winning bet they will changr the price of the option with no attention to the underlying market even though they are are also the market makers as all of their indexes are not strictly the same. For example, CBOE S&P500 index which has the ticker SPX is called US SPX 500 - not the same thing.

Back to the options. You will be trading the option one minute in the money, the next, someone on their options desk will be in a unprofitable position and mark down the option 20%, 30%, 40% 50%. Anything they feel basically against the market you are trading and due to the decay on this instrument, which is the worst there is of any option trading day, you will likely end up expiring them worthless.

You have been warned

 

[arabianights]

I woukdn't go anywhere near ANY of IG Indexes daily options or for that matter, any of their option products. They are all a complete rip off.

ANY OF THEM

including their binaries, ladder, or dailies which they promote very hard and if you trade them you will see why.

The reason, well they have options traders who hve to settle their book at any given moment. Since CBOE don't offer one day options IG index are the counter party and thus have direct exposure to risk. If the market moves against them comapred to what their book looks like, they will deliberatly 'fix' the price of the option so that they are back in the mney themselves.

so if you are trading with them and they are on the other side of a winning bet they will changr the price of the option with no attention to the underlying market even though they are are also the market makers as all of their indexes are not strictly the same. For example, CBOE S&P500 index which has the ticker SPX is called US SPX 500 - not the same thing.

Back to the options. You will be trading the option one minute in the money, the next, someone on their options desk will be in a unprofitable position and mark down the option 20%, 30%, 40% 50%. Anything they feel basically against the market you are trading and due to the decay on this instrument, which is the worst there is of any option trading day, you will likely end up expiring them worthless.

You have been warned

So short the option then, glasshopper old chap!

It isnt' that hard to hedge an option in the underlying while either long or short, you know. Esepcailly when it's intraday.

If these mispricings are really so blatant then you should making a shedload of money. I assume you are?

 

[glasshopper]

So short the option then, glasshopper old chap!

It isnt' that hard to hedge an option in the underlying while either long or short, you know. Esepcailly when it's intraday.

If these mispricings are really so blatant then you should making a shedload of money. I assume you are?

hedge a hedge? hmmm

I would only hedge a put/call as a writer and IG require the same deposit margin as trading the instrument itself except the rate of profit is less even including the premium so its better not to write an option but buy the underlying so shorting the option isn't a very good option (excuse the pun)

As for mispricing that not what I'm on about. I'm saying they fix price so that you can't make a **** load of money on their options as well as the ****ty price offered for their options

 

[shortsell]

if you buy a call and the index rallies sharply and they offer the option cheaper, buy more!

these things expire against the underlying - so if they were actually doing what you say they would be handing out free cash.

they're not unfortunately.

 

[stevespray]

Glasshopper,

Surely, ultimately, IG must expire their options against a quote from the underlying itself? Check the settlement terms and I think that you'll find out exactly what the nature of settlement is.

As Shortsell has mentioned, given that settlement has to be made against an external price over which IG has no control, these sudden moves (if they really do exist) represent value opportunities for you as a client - you don't need to have a view on which way the market will move, you just wade in each time they bias the price in the knowledge that, over time, you'll come out on top.


Steve.

 

[glasshopper]

if they fix price once every day - and i don't know how often they do but I do know that they do - how are you supposed to know when it is it will happen? Or by how much? If you want to hedge your portfoilio risk against the underlying? Wait until it doesn't happen and risk bigger losses on your portfolio? Or take a chance and risk that the option may not cover your risk. The model that options are priced against is called the Black–Scholes model. If the market maker is not following the Black–Scholes model by making the price transparent but in according to their book how do you make price discovery? Settlement is made against the underlying but the option has not followed the underlying faithfully during the day losing price as IG dictate so it has been settled at the option price IG have most favourable and yes they do have control over price because 1. the market is one they create as per their terms & conditions and is internal that you have to agree to so if there is a dispute in time or price you have to accept the price they give and 2. as an example the US30 loosely follows the DJI but not faithful to it to the index, Often during the trading day you will see IG's price move anything up to 10 points against the market it i supposed to track. I know because I have a data provider that I can chart the real time SPX DJI & NDX price outside of the price given by broker by a firm that quote direct rfom the exchange. If you query the price at any time they will claim that price is not based on the cash index but a number of other deriviatives that they use to determine price. You will never know if that point or 2 over the cash will be one that is printed so as to take out a stop or two or a fluctuation in their model. Fortunately, with the index bets you can be pretty secure that IG's price will not move against the cash index to such a great degree and if there is a dispute you can ask for a Bloomberg quote and add their spread The same is true with NYMEX & COMEX. Unfortunately, the same cannot be said about their options or FOREX ( there's no exchange) as they do not apply Black–Scholes. If at some point in the day it will lose 50% of it value because a trader a IG need to book IG a profit why should you bother to trade it? It's a loser every time.

It is also ridiculous to suggest that you can just wade in. Even if you do get direction right, price of the option will not be aadjusted later in the day and if you don't get the direction you obviously lose by getting the direction wrong. I'll also counter the wading argument with what I said at the beginning. How do you know when, how often or even how much? I'm not talking about arbitrage, I'm talking about straight naked long or short an option.

 

[glasshopper]

if you buy a call and the index rallies sharply and they offer the option cheaper, buy more!

these things expire against the underlying - so if they were actually doing what you say they would be handing out free cash.

they're not unfortunately.

It all depends on the strike. If the strike is in the money but not at the money the decay will just kill any profit as will any move against you. If you have traded IG's options you'll see how much you lose as the day gets longer and smaller & smaller movs against you wipe bigger & bigger profits. If the option is at the money then the underlying is cheaper and more profitable as there is not time decay or differential in price due to volitilityalthough if you are quick you can take advatage. the problem I am addressing in in the money not at the strike option. Once price is knocked down by as much as they do you need some extreme volitilty in your direction to get back into the money your were on and if volitility is working for you then you can average down otherwise you're chasing a loser. Even if the option has reached its strike, if price has been adjusted it continues to move witht he underlying but the loss is not recovered. They will claim this is 'implied volitility' but the VIX has nothing to do with it. It is another trader like yourself that have bet ad IG is losing on their book.

 

[glasshopper]

if you buy a call and the index rallies sharply and they offer the option cheaper, buy more!

these things expire against the underlying - so if they were actually doing what you say they would be handing out free cash.

they're not unfortunately.

MY whole point is that they don't expire against the underlying only at expiration which makes it pretty pointless exercise trading them if the rest of the day the have been trading in accordance with profit/loss of the options desk

 

[arabianights]

What are you talking about?

If the option is severely underpriced, then buy it. If it's severely overpriced, sell it. Just do that consistently. You will come out with a profit in the end.

 

[shortsell]

It all depends on the strike. If the strike is in the money but not at the money the decay will just kill any profit as will any move against you. If you have traded IG's options you'll see how much you lose as the day gets longer and smaller & smaller movs against you wipe bigger & bigger profits. If the option is at the money then the underlying is cheaper and more profitable as there is not time decay or differential in price due to volitilityalthough if you are quick you can take advatage. the problem I am addressing in in the money not at the strike option. Once price is knocked down by as much as they do you need some extreme volitilty in your direction to get back into the money your were on and if volitility is working for you then you can average down otherwise you're chasing a loser. Even if the option has reached its strike, if price has been adjusted it continues to move witht he underlying but the loss is not recovered. They will claim this is 'implied volitility' but the VIX has nothing to do with it. It is another trader like yourself that have bet ad IG is losing on their book.

you don't know what you're talking about and you shouldn't be trading options.

 

[glasshopper]

what is your problem with what I've said perhaps using americanisms has confused you?

Out the money = Option Has no value and is far below the strike
In the Money = Has value value but below the strike
At the Money = At the strike at the strike or above

The above is for a call option it would be the other way around for a put option

 

[glasshopper]

Although its not my place to give investment advice, should you need help with the defintion of an option I suggest you visit the investopedia website where a definition will be supplied to you. A lnk is provided below.

http://www.investopedia.com/terms/a/atthemoney.asp

I avoided using theta, vega & delta as that would have been more confusing to explain

 

[shortsell]

thanks for that.