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Trading options in Oz

Discussion in 'Derivatives' started by Seqman, Apr 25, 2017.

  1. cutz

    cutz

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    Yeah, I've been caught out in the past on expiry day before the close, for this reason I'm normally squared up min a week out.
     
  2. Sharkman

    Sharkman

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    the tradeoff is by doing that you miss out on that sweet final week decay. this is why i'm finding the loss of IB margin quite annoying. i try to set my cash covered put strikes at where i think there's a decent support level - provided the strike is at least a 25 delta (maybe 35-40 delta in lower vol underlyings such as the banks).

    so ideally i want them to expire 1c OTM, then i can sell ATM puts at the same strike the next day. if i did in fact pick the strike well and the stock falls close to that level and proceeds to test the support level over a period of a few days, then it's quite possible it will be hovering around the strike on expiry day and i don't know which way it's going to go.

    in the past i'd be stoked if that happened, i could collect that insane final day theta (in the past i have seen high vol options eg. RIO, WPL, especially QBE back when they were lurching from crisis to crisis being offered at nearly 0.5% of the stock price on expiry day) and if i get assigned, i just take delivery using margin then turn around and sell covered calls over it soon after.

    but now if i don't have the cash available to take the assignment, i have to close out on expiry day if there's a chance it will be assigned, otherwise IB now triggers a margin call and liquidates some of your holdings at random to get your cash balance back above zero. thus not only losing out on the final day theta, but having to potentially cross a nasty spread to close out. and i'm a bit hesitant to throw more funds into my IB account because we don't get SIPC protection anymore. so i fully cash collateralise now just to make things easier to manage.

    interested to hear how you (and WayneL) are dealing with the loss of margining. did it affect your strategy and did you need to adjust your strategy to account for it? am kinda assuming you're both trading thru IB and were also forced to migrate to IB Aust thus losing your margin facility, but maybe that's incorrect?

    as for my own adjustments, since the loss of IB margin earlier this year, i find myself sometimes going for zero cost/small credit 1 by 2 ratio put spreads (with the lower strike at where i think support is) instead. given that i can't collateralise as many short gamma positions these days, the 1 by 2 ratio put spread has more potential upside than a straight cash covered put at the lower strike (but with lower probability).
     
    peter2 and cutz like this.
  3. cutz

    cutz

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    Hi Sharkman.

    In my case I only spread, don't do naked puts with IB, since the changeover my margining has improved, especially with the XJO's. It is tempting to wait till expiry before closing/rolling but the gamma risk far outweighs the benefits, no chance to salvage if things suddenly turn, I have an iron condor on ( morphed previously from an iron fly ) underlying smack bang in the middle, will be closing this one out with a couple of weeks till expiry.
     
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  4. Sharkman

    Sharkman

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    interesting. and you're still getting decent fills near the mid with those strategies?

    i've pretty much given up on condors, christmas trees, call spread risk reversals and the like these last few years and returned to the very basics - cash covered puts and covered calls. similar to WayneL by the looks of it. otherwise too much of a hassle to calculate various scenarios & what i'll do in each one, especially when one is still working full time, and too many legs to pay commission on. the 1 by 2 ratio put spread is about as adventurous as i get these days, but i think sometimes those make more sense with limited collateral when the delta skew gets a bit steeper and i generally hold to expiry anyway.

    you're right, it is a bit of a risk being short so much gamma, but i'm prioritising theta these days since i'm primarily after premium collection, rather than "threading the needle" or punting on blowups. it's manageable if you're fully collateralised and can opt to simply take the assignment. though on a clean break of support, sometimes i just have to close out at a loss and move on.

    what about buying 2 or 3 month slightly-moderately OTM (say 25-40 delta) options to guard the topside and/or bottom when you're heavily short gamma and in danger of getting assigned in the final week? i used to do this a fair bit before i decided to go back to basics, you usually get time skew on your side and can always spread it off into a vertical/calendar after the front month rolls off to recoup premium and reduce decay. that way i get to ride those near the money short options right up til expiry with some moderate protection. of course, this could also be a symptom that i've gotten way too addicted to chasing theta!

    can't see myself going back to executing lots of multi legged strategies any time soon though. maybe when i retire in another 2-3 years. but good on you if you've managed to make them work in this sort of market.
     
  5. cutz

    cutz

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    Hi Sharkman.

    Only get decent fills on the big stocks / XJO.Got talking with a friend recently and decided to go long using a bull put spread with some volume on a smaller cap, I got fried closing out but luckily still managed to turn a small profit, filled way off the mid.

    I kinda like your idea re. diagonals in the final week, in my case a back month long strangle over my nov iron fly then a short straddle on the back month on front expiry with some adjustment would have done the the business, dunno just thinking out aloud, all depends what the underlying is doing.
     
  6. Sharkman

    Sharkman

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    yep pretty much, although i was a bit of a gambler when i used to do this, and often i'd only guard the topside even if i was short a front month near the money straddle, occasionally buying 3 month strangles if delta skew was flattish. i'd never buy a 3 month ATM straddle though, costs way too much premium for my liking.

    i've always been somewhat reluctant to buy OTM puts due to the expensive IV, and i figured i could use margin to just take delivery if the short put got assigned (can't do this anymore), then use the resulting stock position as part of something else the next month, eg. sell 2x ATM front month calls for premium collection where 1 is a covered call and the other forms a new diagonal with the cheap IV 3 month OTM call. but as you say, has to be discretionary based on what's happening, hard to go rules based with this sort of thing.
     
  7. renjer

    renjer

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    Hi all, now that Optionsxpress (aka Schwab) has decided to close their doors in Australia, which broker would you recommend to trade options spreads?
     
  8. Sharkman

    Sharkman

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    IB (Interactive Brokers) would be my recommendation. been using them for over 10 years now. excellent commission rates and i haven't found them all that difficult to use, although some people have complained about ease of use, so be warned they may not suit everyone. they're also not what they used to be before the forced migration from IB LLC to IB Aust, due to loss of SIPC protection and margining, but still the best i have found for ASX options trading.
     
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