Options trading advice

shafiq · 8 September 2014

hi everyone, I'm new in trading, I wonder, whether anyone can tell me, that if I want to do option trading as beginner, should I take advice from a full service broker or advisor? and where can I find an option advisor for full service?

minwa · 9 September 2014

full service broker: never. they will sell you multi legged spreads to rack in commissions. think about it, if they can trade do you think they will be sitting there all day taking orders and making a few bucks in commissions ?

advisor: what kind are you talking about ? some fresh finance graduate in a nice suit with degrees on the shelf and no trading experience or someone with proven trading track record of at least a few years ? i think the answer is obvious.

Cozz · 12 December 2014

minwa said:
full service broker: never. they will sell you multi legged spreads to rack in commissions. think about it, if they can trade do you think they will be sitting there all day taking orders and making a few bucks in commissions ?

advisor: what kind are you talking about ? some fresh finance graduate in a nice suit with degrees on the shelf and no trading experience or someone with proven trading track record of at least a few years ? i think the answer is obvious.

I agree with Minwa. I have been trading equity options for about 30 years and have had a number of brokers ("advisors")> Really the best ones are order takers but it is too easy to ask them what they think and the (downward) spiral starts. You need to make up your own mind on a trade, be committed to it, and take full responsibility for the consequences.

If you need an advisor to trade options you should not be trading them at all. If you have not already done so , perhaps start trading shares, or at least invest in a trading platform and do paper trades for about 6 months before committing any risk money. And supplement that with some education - ASX courses (have not been to any) seem to cover the basics. A third way is to start with buy/writes - it will start to give you a feel for how options move against the underlying stock, and being exercised or having to buy badk is a realtively low risk way of learning 'real time'.

Whatever path you take, you will pay to learn one way or another. The sooner you accept that the best way is to invest in your own knowledge rather than pay somebody else to make the decisions for you.

To be clear - I am not saying don't trade options. But if you want to make money at it, I dont know any other way but to keep learning and dont pay brokerage or other fees to anybody to advise you what potions to take/exit.

Cozz · 12 December 2014

Cozz said:
I agree with Minwa. I have been trading equity options for about 30 years and have had a number of brokers ("advisors")> Really the best ones are order takers but it is too easy to ask them what they think and the (downward) spiral starts. You need to make up your own mind on a trade, be committed to it, and take full responsibility for the consequences.

If you need an advisor to trade options you should not be trading them at all. If you have not already done so , perhaps start trading shares, or at least invest in a trading platform and do paper trades for about 6 months before committing any risk money. And supplement that with some education - ASX courses (have not been to any) seem to cover the basics. A third way is to start with buy/writes - it will start to give you a feel for how options move against the underlying stock, and being exercised or having to buy badk is a realtively low risk way of learning 'real time'.

Whatever path you take, you will pay to learn one way or another. The sooner you accept that the best way is to invest in your own knowledge rather than pay somebody else to make the decisions for you.

To be clear - I am not saying don't trade options. But if you want to make money at it, I dont know any other way but to keep learning and dont pay brokerage or other fees to anybody to advise you what potions to take/exit.

On a slightly different note - can anybody tell me who the best online ASX equity options brokers are these days?

I am interested in trading vertical spreads, calendar spreads and the like as well as long calls and puts. On the spreads I am even prepared to enter them a leg at a time if necessary but I want online not telephone access. And - surprise - I want to keep my brokerage costs to a minimum.

theroyal · 13 December 2014

Hi, trading the vast majority of ASX options, using the strategies that you mention would be impossible. The spread prices are wide on most instruments,which means you cannot obtain a fair price for the risk that you are taking.
I don't know of one one broker in Australia that offers a competitive service but I am sure somebody will know of one.

SuperGlue · 5 January 2015

No-ob questions.

No strategy options trading.

Bought (CBABS9) CBA $82 call option @1.25 expire Jan 29
Currently, around $4+

Notice that there are no bid/sell on deep ITM calls.

$82 is the last with bid/sell.

Not much money to exercise the call. (Not sure whether IB allow exercising of options.)

I can close the trade to take profit now.

What happens if it goes deep ITM and there are no bid/sell?

What happens if it goes deep ITM till it expires?

hhse · 6 January 2015

(1) $82 is the last with bid/sell.
Are you sure you didn't filter out strikes?

(2) Not much money to exercise the call. (Not sure whether IB allow exercising of options.)
You'd be one of the few, why not just sell

I can close the trade to take profit now.
Surprised you haven't already with that much profit

What happens if it goes deep ITM and there are no bid/sell?
With market like these, you don't need to worry lol

What happens if it goes deep ITM till it expires?
You will get allocated CBA stocks at exercise commission

cutz · 11 January 2015

SuperGlue said:
What happens if it goes deep ITM and there are no bid/sell?

What happens if it goes deep ITM till it expires?

Don't worry if there are no bid/sells, you will get quotes on request.

SuperGlue · 12 January 2015

Thanks hhse & cutz.

Closed the trade on the day I seek advice.
Not knowing what to do, better to take profit after holding the trade for quite a while.

I have a better understanding now if trade goes deep ITM.

SuperGlue · 12 January 2015

hhse;855755[/I said:
(2) Not much money to exercise the call. (Not sure whether IB allow exercising of options.)

You'd be one of the few, why not just sell

CBA do pay good dividend and interim results is on February 11th 2015.
I did a search and got this.

Two Exceptions
Occasionally the stock pays a big dividend and exercising a call option to capture that dividend may be worthwhile.

If you own an option that is deep in the money, you may not be able to sell it at its fair value. If the bids are too low, it's preferable to exercise the option then immediately unload the stock position. This is not a common occurrence.

http://www.investopedia.com/articles/optioninvestor/09/when-exercise-options.asp

sails · 12 January 2015

SuperGlue said:
CBA do pay good dividend and interim results is on February 11th 2015.
I did a search and got this.

Two Exceptions
Occasionally the stock pays a big dividend and exercising a call option to capture that dividend may be worthwhile.

If you own an option that is deep in the money, you may not be able to sell it at its fair value. If the bids are too low, it's preferable to exercise the option then immediately unload the stock position. This is not a common occurrence.

http://www.investopedia.com/articles/optioninvestor/09/when-exercise-options.asp

If you are planning to pick up the dividend, then you need to exercise the call options the day before ex-dividend day and prior to the time set out by your broker. The stock position doesn't show up in your account until the next morning on ex-dividend day and often stocks fall by the amount of the dividend (give or take the effect of any overnight influences) so it's not a case of just exercise and immediately unload the stock position. At least that's how it was when I traded positions like this.

If you are planning to unload a stock position because there is not enough funds in the account, you need to find out how your broker handles it. Some brokers have been known to charge a fee for this. Some don't give you much time to unload - I know one broker who would only give 10 minutes to close the stock position before their software start randomly shutting down positions on your account.

Very important to have a good working knowledge of how these things work and how your broker handles it or it can become a very expensive learning experience...

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