Broker Recommendations - Options Trading

Hi folks,

I've only been trading options for a few months (comsec) now but I think I have a reasonable grasp of what's going on. My issue is, and as has been mentioned here before, the fairly large amount of margin comsec wants lodged versus OCH. In particular, it makes it nearly impossible to open up written put positions (17% intervals ????). On the other hand, I don't think I've seen any online brokers that didn't want 50% of the entire exposure and optionsxpress want you to maintain a balance of $100K+ before they'll let you even write a put. Who do you guys (gals?) recommend, especially for naked written positions. And why the extra paranoia with respect to written puts?

Cheers,

chromatic

Re: Broker Recommendations

chromatic said:

Hi folks,

I've only been trading options for a few months (comsec) now but I think I have a reasonable grasp of what's going on. My issue is, and as has been mentioned here before, the fairly large amount of margin comsec wants lodged versus OCH. In particular, it makes it nearly impossible to open up written put positions (17% intervals ????). On the other hand, I don't think I've seen any online brokers that didn't want 50% of the entire exposure and optionsxpress want you to maintain a balance of $100K+ before they'll let you even write a put. Who do you guys (gals?) recommend, especially for naked written positions. And why the extra paranoia with respect to written puts?

Cheers,

chromatic

Click to expand...

Has anybody had anything to do with I.G.Markets (brokers)?

I am looking into using a different brokerage firm as here in New Zealand it is difficult to trade options or go short etc.They seem to have everything covered and their trading platform is free.Any comments, please ?

Re: Broker Recommendations

I made myself a vow not to participate in other threads herein, but this thread concerns me.

chromatic, I have traded options for many, many years (short strangles and short butterflies in SPI, FTSE and DAX), so I offer my advice, because you have answered your own questions with

"I've only been trading options for a few months "
"And why the extra paranoia with respect to written puts"

Click to expand...

If you do not know why the extra paranoia with written puts, then you should not be trading them. I worked on the trading floor of the SFE in 1987 and watched as security physically removed traders who had been short puts, and I mean physically removed from the floor. The reason? They were bankrupted on that day, so they were trading recklessly to get out. Losing another few million was not going to harm them, but perhaps they could make it back up.

Victor Neiderhoffer, a well respected fund manager for many years, blew up his fund from being short puts over the tech crash or Sep 11. Either event would not have mattered.

All these events are part of long distribution tails that occur more often than the mathematical models suggest. The only reason to short puts is if you really want to own the stock and can therefore afford to buy it when the time comes (and it will come) OR if you can hedge effectively. And I'm afraid short equity puts will not allow you to hedge until its too late. If you are shorting puts as an income strategy then you will pay the price dearly. It may not happen this year, next year or the year after. It will happen eventually and when it does you'll give back many years worth of premium in the blink of an eye.

Nick

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Re: Broker Recommendations

Hi Nick,

Thanks for heads up. I don't want to write puts for income per se but I guess your comments would apply to much a greater degree for index options.

I understand that the premium earned when writing the puts builds into them the extra paranoia of past shocks so most (not all) mathematical models opinions of fair price don't quite line up with the market. What I don't really understand, and it's a bit unscrupulous of some brokers, is why they want 50% margin lodged for the entire exposure! e.g. for a certain XJO put e.g. March 4600, you'd need to lodge around $23K to earn < $1K in premium. It won't matter that your position is partially hedged through a whole bunch of written calls either.

Finally, the last straw is that some brokers will give you the 5% (currently) rate for margins held by the ACH, some won't. Even for written calls, having positions open for any length of time together with the additional margins everyone wants makes it an almost pointless endeavour since you have to disocount your premium earned by the interest lost on the margin lodged. For brokers that are withholding the interest, this isn't an issue of covering themselves from (small) shocks, this is just plain ripping the client off.

Cheers,

chromatic

Re: Broker Recommendations

I think you'll find that the broker's obligation is to charge "the minimum initial margin" which means that they can charge more if they wish.

Is it a scam? If you get paid interest on non-used funds, such as in a CFD or futures account, then one could question their motive. Unfortunately the usual answer will always come back to them taking more protection via a higher initial margin. So, I geuss it's the usual "like it or lump it" scenario.

Perhaps the best thing to do is shop around and see if you can find a broker that offers the OCH minimum.