Options Trading Thread

M

Morris

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As someone who is fairly new to the world of options trading, I'd appreciate any imput from more experienced options traders.

Specifically:

Which brokers offer decent options fees/online trading software.

Any thoughts on more sophisticated options spreads - butterflies, condors etc.

Any good options pricing software available.

Other options trading strategies anyone here employs.

What people trade - Index options, share options, currencies, bonds, commodities ?


Maybe worth adding to this thread, you never know, some may find it useful...

Thanks in advance.

Mo
 
Hi Mo

Option trading is not often mentioned on T2W so I’m pleased to see the subject raised.

I would not call my self “experienced” but I have been using UK Share Options and FTSE Index Options as a trading vehicle for around 2 years. The major point on the plus side is obviously the gearing with the major minus being the limited number of share options available. I’m not a great fan of Spread betting – but that’s another story.

To answer your queries in order:

I use MyTrack/MyBroker for price information and to trade options and basically its £15 buy and £15 sell with £1.80 clearing fee for each purchase. When I started they seemed to be the only broker I could find which traded on line. Now I would guess there are others? However I have stuck with MyBroker because it’s pretty efficient. There is no option pricing software included here.

I only buy (and sell) traded options and do not write them. I do not use any of the different techniques such as Straddles although I understand that where they could be used. Never heard of the two you mention.

If you use Metastock as I do, there is an option pricing package included but I rarely use it. If you want a pricing package then I came across one called Opt2000 somewhere (cannot remember where) – it’s freeware so I guess a search on the web might find it. However unless you are going to get really into the technicalities of options I’m not sure that knowledge of the Greeks is of much help. I usually decide on my trades by inspection of the prices from the option display on MyTrack.

I believe that trading options is not much different from trading the underlying share, so you must decide your strategy first then look upon options as a vehicle only. So it’s back to looking for reversals, o/b and o/s levels, resistance and support etc, etc. As I said at the beginning the advantage is the leverage you get with options.

Hope this is of some help
 
Mo!
Hello m8 haven't chatted to you for a fair while. Hope your keeping well and your chipping away at 'em and racking up the profits.
Options trading.
Well I haven't done it seriously for a couple of years, explain more in a min.
At the time, as esiotrot says, there were relatively few brokers around at reasonable costs let alone online brokers. A search on the liffe site will give you a list of the brokers and they're costs. These vary immensely and I believe there are some diehards who are charging in my view, extortionate sums to trade and to hold account minimums. So well worth shopping around.
I looked at my track/mybroker as Easi did but I found them to be on the expensive side at that time. The costs have come down considerably according to Easi.
I was using Redmayne Bently via the phone when I started and shortly after was using Charles Schwabb. Now here's the crunch.
I was being quoted different prices within seconds of each other for the same contract.
And the double crunch?
at the time I was using Updata for my shares and options feed, back in the days when they were a good company and not the crap company they are now. (In my opinion you understand).
Well, the prices I was seeing on my screen for the various ftse and shares prices. (Though mainly the ftse was my game, and this is what I am on about) were in some cases 50 points away from the price that either of my brokers were quoting!!!
That is a hell of a lot to give away. £500 quid before you start!
Why the difference?
Well it was probably that the updata software was behind the time feed. To be fair there is an awful lot of info to pass through the system, but they always said that there was nothing wrong with their feed. (Well it must be my fault then that the prices from updata are so screwed up. Can't be from the brokeres, because you trade off of those prices. But why the difference between the two brokers.
That's why I switched to futures.
Same cost at £10 per point for one or five contracts etc, easier to close and with no time decay.

Anyway, back to options.
Once you understand the basics of how they work a very good book to read is John Piper's 'The Way To Trade'.
The guy is a very succesful trader who is still trading today. (That I think is important as well. he's no has been who has suddenly decided to pack up trading and now wants to teach people how to do it/write a book on it/hold seminars etc. If they were that good why pack up trading?)

I think John favours writing naked options against others, but this, apart from not being allowed to do by your broker unless you know what you are doing/have the capital to put up front is a risky way to trade. It favors I think a slow moving market, and where, when 'buying' options you are limited in your losses, by writing options your losses 'can' be uncapped.
It's all covered in the book and gives the pros and cons of both. The choice of which seris to get on is very important. Pick one that is too far out of the money and it will be ages before/if, it goes into profit. Add to that the gearing/time decay that accrues and you might as well pour your cash down the nearest watery recepticle. Get it right and it is brilliant. https://europa.fixedoddsgroup.com//cgmjupiter//linkto_cbet.cgi?l=GB&linkfrom=UK15228
That's a link to a firm I am currently using. Not a fully blown options site, but a good way to trade strategies for very low cost.
I wouldn't deposit too much money with them though as I'm not sure about investor protection. I curently have the second leg of a butterfly running because it looks like my target will be hit to give me a double strike. Where as Iwould normally close one half of the butterfly as it moved away from my price.
Currently have a big expiry range trade running that took 2 days to move into profit (sweat, sweat) and only has a few more days to run. Although you can close at any time the market is open after the first half hour of putting on the intial trade. Which is something I'm not too happy with. The good thing about this site is that you can set your own parameters. The trick being to keep the time span as short as your trade will allow and that eliminates the time decay.

Now, all I want is my prize for posting the longest, most drawn out reply of the history of this site.

Still not at the bottom yet.

Seriously though, if you need to know anything more about options, I shall try to enlighten as best I can

Nearly at the bottom

All the best

Options.

Damn,

still not there yet.

Better stop

or

this

will

turn

into

a version

of

war

and

peace...
 
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For what its worth Options I will give you my 2p. Forget FTSE options and look to the good old US. Here you can buy a contract for 100 shares as opposed to European options 1000 shares. Also the number of optionable stocks in the US is over 3000 where as in UK I think its around 90.
More importantly is the liquidity in the US a billion contracts on a good day and in the UK a millon if your lucky.
You will find most US brokers have good option dealing at a fraction of the handfull in the UK, in fact option dealing is concidered safe and even allowed in the 101 retirement account.
I get very good liquid spreads somewhere in the region of 25c and stocks such as Cisco have no spread as they are so heavily traded.
I am getting 12-20% per month on DOW index and LEAP stocks for very limited risk, compound this up and you can see a very respectable return. A friend of mine plays option on NASDAQ and gets very much more but his risks are greater, its all up to the individual.
Check out the free education at Chicago Board Option Exchange where I get my quotes and they reccomend brokers etc.
The one book I would reccomend is-Getting Started in Options by Michael C. Thomset.
To sum up I do not confuse the flowery language of the stratergies with your own personal risk, I have a game plan and stick to it. Of course you could not want to send your money to the US but most brokerage accounts let you transfer money to a savings account
Hope this helps any more you want to know give me a shout. Sorry my typings slow and my spelling is crap!
Good luck...............Merlin
 
Merlin;
Thank you for your post. I had never even thought about trading options over the pond.
Restricted by demographics you see. Of course by sheer volume, the bigger the market is the best place to trade, because of liquidity. And to be honest, as I keep on saying, we get a crap deal in this country and it has to change.
And it will change because the barriers are now getting smashed.
It is so easy now to trade on the usa or even the aussie market if you like.
So unless the uk guys pull their socks up, (such a quaint english saying. Let's kick it into the millenium). Unless the uk guys get their asses in gear, they will see the bread and butter going across the water. And about time too. Give us decent trading conditions or our money goes elsewhere. How hard is that to understand. We have a choice now, and it will be used. I want the best conditions that I can get for my money, If that means trading abroad then so be it.
I don't want to pay stamp duty on shares. How bloody archaic is that. I want low commision costs and tight spreads. and whoever gives me that regardless of where they are gets my money. Form a queue here.
I am currently using an American based company for my futures trading. Mainly because I am getting commision costs of £1.70 a trade! I still know of some uk firms who are charging £50 to open and £30 to close.
WHY?
Simple.
Because they could get away with it. In short they had a captive audience.
Not any more...
We also want a decent L2 set up in this country.
Then I might get Naz to show me how to use it properly.
But alas; I am not about much in the evenings.
If things change though, I will be...
As Wolfie Smith (or was it Che` once said...
'Power to the people...')

To everyone who trades. May you have good fortune. But don't rely on your broker...

Options

And Merlin... do you have any useful brokers to hand... bear in mind that I much favour the futures market please.
 
Glad to see an options thread developing. I use Options Direct and tend to place my orders by phone as I am at work most of the day. But they also give you access to online trading thru MyTrack, which is free provided that you place at least one deal online during each calendar month - not much of a hardship if you are trading/working from home. Short positions have to be opened over the phone, but longs and closing transactions can be placed on-line.

http://www.options-direct.co.uk/index2.htm

My view, FWIW, is that you really need to write and buy options in combinations to profit consistently. However, I will only contemplate naked calls on an index, and neither naked calls or puts on an equity. Nor will I write naked puts on an index - there are plenty of reasons why I could envisage an index opening down 500 points (say 10%) and then keep on going, but can't imagine anything that would cause an index to spike up 10% and keep going.

I regularly write ftse 100 calls above the market with about a month to expiry, but tend not to write the puts below it to turn it into a "short strangle". Another favourite is a 1x2 ratio spread on the ftse. For example, I have a 1x2 ratio spread on the ftse 100 June series. Bought 1 x 5125 call @ 200 and sold 2x 5275 calls at 110. This gives me a net 20 at all levels below 5125, with a potential gain of 170 with expiry at 5275. I will start to lose if the ftse rises above 5445, and with the current strength in the Dow this is something I am keeping my eye on. I could, at time of writing, cover it with another long call at 5425 @ 28, which would then give me a maximum loss of 8 above 5417 or below 5133. So I am keeping an eye on the postion. I still think that expiry on 21 June above 5445 is highly unlikely, but time will tell.

The attached payoff diagram probably explains the strategy more easily. This is a freebie which uses Excel, and can be downloaded from :-

http://www.hoadley.net/options/options.htm

You will need a reasonably up-to-date version of Excel to run this properly - I use Excel 2000. There is an excellent on-line tutorial, broken down into manageable pieces, for using this calculator, and I find it invaluable. Please note that this is written with the US market in mind, so when you see 20 contracts in the table, it does in fact mean 2 contracts of the ftse 100, and likewise 10 contracts means 1 contract in the ftse 100.
 

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And here is the position if I choose to put in a protecting long call at 5425 @ 28. It effectively turns the 1x2 ratio spread into a "butterfly". The plus side is that I am protected from the effects of a runaway rally, but the downside is that I have a potential loss of 8 below 5133, whereas at the moment my worst case scenario on a fall in the index is a profit of 20, although with significant potential losses on a runaway rally above 5425. It also reduces my profit by 28 at all levels.
 

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I'm also pleased to see an options thread developing.I realy enjoyed reading options post.Especialy quotes like this.

_____________________________________

" Unless the uk guys get their asses in gear, they will see the bread and butter going across the water. And about time too. Give us decent trading conditions or our money goes elsewhere. How hard is that to understand. We have a choice now, and it will be used. I want the best conditions that I can get for my money, If that means trading abroad then so be it."

"We also want a decent L2 set up in this country."

____________________________________

We wont have a decent level 2 system in the UK until we allow something like the US ECN's to operate on the same screen with the market makers.This will allow the spreads to tighten up,because traders like us will capture the spread on inefficient stocks and dozy market makers will have to wake up or start loosing their market share. That would be a start to giving power to the people. An interesting book to read is Secrets of the SOES bandit by Harvey Houtkin. The Nasdaq always seems to be making overtures to take over the LSE.Lets pray that eventualy they do that and kick some ass to give the UK a better trading system.
 
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QQQ Options

I understand you can trade options on the QQQ's, where volume is heavy and thus liquidity excellent.

It seems the trader uses at the money, or in the money prices.

And these options are also traded intraday !

Hope this helps.
 
Thanks for all replies so far - good to know that there are other options traders lurking.

Suggest this thread could grow & grow...

[Long June 5200 puts]
 
Curiously, I was just re-reading Piper's book last night.

He reckons buying options is not really worthwhile, preferring instead to sell them and hedge with futures positions.

Thanks for the comments anyway.

[Closed June puts yesterday for a few £...]
 
RogerM,

Great site, Hoadley, you provided. He's giving the software away. Have you bought the full version?

FG
 
Hi Hill farmer - The Hoadley calculator is great isn't it. I just use the free version because I'm a cheapskate. The on-line tutorial is really good. The main thing you have to watch with UK options is that the charts and tables are set up for 100 size contracts rather than the UK 1000 size, so to overcome this the only fix I have been able to find that works is to put 10x the contract size in - i.e. if you are buying 2 x 5225 calls, you input 20 contracts to make the arithmatic and payoff diagram work out right. Unless you can tell me different of course!
 
RogerM,

Thanks for that. Will download a copy. For the money I'm very tempted to buy the thing. I emailed Hoadley asking him a few questions and he emailed back immediately. Looks like he's on top of things and I can't begrudge him the eleven quid or whatever it is. Any other observations on the software? Who do you trade your futures and options with? What do you look out for on futures? Thanks.

FG
 
Hill Farmer,

The basic position calculator is free, and although I say "basic", it is in fact incredibly sophisticated - esp for a freebie. I had a look at the additional programming you get for the princely sum of about £11, and it takes it on another quantum leap - probably more than most people will ever need, unless their style of trading is very frenetic.

I emailed Peter Hoadley and he said that there is nothing written into the system that differentiates between US 100 size contracts, and UK 1000 size. Therefore as the ftse 100 is worth £10 per point, all references to the ftse 100 has to be 10x - including initial stock price and price in centre of the graph. Likewise, the over-ride price has to be the full price in £'s. This enables you to input the correct number of contracts. The attached copy of my current position should be self explanatory.

One other observation is that when you are choosing the graph increment, it must be in a denomination that allows the strike prices you are charting to coincide with the increments on the chart. Turns on the chart can only take place on an increment, and not between them. e.g if you have strikes at 180, 200 and 220 - do not have increments of 15, as not all the strikes can fall on an increment. Instead choose (say) 10 or 20 as the increment, and then check on the graph that the stries selected are shown on the increment lines.

I have given up trading futures in isolation, and only plan to use them to hedge a position that's in danger of running away in the short term. So in the 1x2 spread shown, if the ftse had started a rapid rally immediately after placing the position I would have bought 2 June ftse futures to hedge the potential loss from the short calls. If it happens now of course I can buy the 5425 calls for just 4.5p so would take that route.
 

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RogerM,

All very useful, much appreciated. I need to play around with software. Who do you trade with?

HF
 
Really useful stuff here.

Just a reminder that not all UK share options are lots of 1000. The ones that come to mind are AstraZeneca (100 shares) and Barclays (4000 shares)
 
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