AAABeltway, The ss futures will not kill the options markets. imo, if anything they will lead to more options volume. First, if there are tight spreads they may make it easier to hedge certain types of strategies. In addition, if they are successful I can't imagine it would take too long for someone to come up with cash settled options on the stock futures. the active option traders probably view these instruments as another way to offset their risk. single stock futures have failed in a number of markets but seem to be doing fine in Europe. In the european markets where they are doing well, options volumes continue to experience great growth. As for trading options, I know a number of people who do very well trading options. It is possible but probably more difficult. If you are moving to a swing type strategy this may be a way to go as you can get more bang for your buck. Commissions are not as high as led to believe given the leverage. For under $2 bucks in fees you get the leverage of 100 shares.
def, You're right of course about options surviving. They are thriving along side commodity futures. I just get annoyed by the attitude of the options exchanges, which seems to resemble the Mafia protecting a garbage hauling franchise.
SSF are being so much hyped right now. I am very skeptical, the liquidity will not be adequate I think. Plus the risk will be huge. I don't even consider trading them. Don't get caught up into this hype.
El Cazador, I'm not sure how the proposed options rule affects you. If you are trying to daytrade options now, I think you are really swimming upstream. If you are trading the QQQ options, I think the NQ e-mini is a much better daytrading product. I have been assured however by a consultant to the Nasdaq partnership that their SSF's product will avoid all the marketmaker nonsense and be very trader friendly. The issue will be liquidity and spreads.
kicking, i don't see how the risk will be huge unless firms over extend margin to their clients and there is liquidity. The futures will naturally be kept in line due to arb opportunities between them and the underlying. There is a good chance that many of the big stock brokers will not support the SSF's since they do not want to canibalize their franchises. (This is a major factor towards their lack of success in markets like HK and Australia). In Europe however there was a great marketing campaign followed through by demand from the retail sector. In the states there seems to be demand and it also seems that there will be enough firms making two sided markets and thus provide adequate liquidity - time will tell. as for options, try to trade the ones with autoexecution turned on. If autoex is on, then what you see is what you get.
Sorry, how do you see if autoex is on? Thanks Well on the SSF, imagine the company says something at some conference during the day and the stock plunges 5-10% in less than 10 minutes (nothing unusual) with 10:1 leverage on a futures contract, any technical problem to get out and you lost it all in 15 min . I am not even thinking about stock halts.
autex: the exchanges send out the info and electronic brokers should be able to display the info on the screens. re: 10:1 margin. With stocks you have 4:1 margin now and with all the hype regarding professional firms offering 10:1 and how great that is, I don't see that much of a difference if you manage your cash/risk properly. if you can't do that you should not trade the product. The same can be said about stock options and many of the nasdaq stocks during the buble. stop losses and automatic liquidations are two ways to mitigate the margin issue. I may not have all my facts available on this but I heard rumblings that margin on the SSF's would be higher than other future contracts - thus I'm not sure 10:1 margin will be afforded. Futures offer more leverage and thus I agree with you that they offer more risk. (I was looking at risk from a different perspective in my previous comment). I thus would agree with you on one aspect - you should not trade futures if you are not aware of the pros and cons of leverage.
Regarding the risk leverage of futures; Risk defined as the % of money you risk of your capital on a trade. Then trading futures is NOT more risky then trading the stock itself. It's just that your stoploss is faster reached. If you use 2:1 leverage it's two times faster reached If you use 5:1 leverage it's 5 times faster reached
Hi. I am currently a stock daytrader and was a futures options floor trader for 5 years. I am contemplating a switch to options trading in stocks since my exposure to stock daytrading has enabled me to have a better grasp on stock 'movements' and I think that that skill coupled with my option knowlege would enable me to do well in this arena. However, as I research this career change, I sense this frustration among option traders that,in spite of being around since 1973, equity options trading is still too illiquid, too fragmented, and the order execution still suspect due to the "floor people" being greedy,etc,etc,etc. Are any of these criticisms true? or is it just the option losers who are playing sour grapes? In stock daytrading,even though an estimated 80% lose $, the 20% make between $30,000- 6 or even 7 figures. A good majority of the 20% who do make money regularly make between $200-$400 daily trading 1-2 million shares a month (I know coz I am one of them)Are there option traders who meet or exceed these probabilities. Of course in any endeavour, there are always those who will make millions. But I am trying to get a sense of the entire bell curve, not just the superstars. I am not including the floor traders either, just desk trading. I would like to swing trade between 3-5 contracts on 4-6 stocks and hold them for at most 2 weeks. Sound reasonable? I am contemplating this change coz I am tired of staring at the screen 6.5 hours a day and having to rush my bathroom breaks (I drink lots of coffee) plus I would like to hit homeruns (options leverage) instead of singles(scalping stocks). THANKS for you insight.
GATrader, For longer term trading like you intend to do, it is probably possible to trade options successfully given your experience. I would have the opposite answer if you intended to scalp options the way you scalp stocks, for the many reasons you listed. I don't think those are only the concerns of losing traders. Just compare spreads and the ridiculous rules of options exchanges to those of stocks. I would never try to scalp options, but that's just me...there are probably people here doing that successfully. I think the bigger question is can you successfully trade a totally different style that you do now. Clearly you have done well both as a floor trader and a screen scalper, both of which require a lot of "activity". Swing trading, while relying on the same principles for success, is different. Not easier or harder, just different. If it fits your style, then go for it. You will only find out when you try. I started trading by swinging futures options and got killed (maybe even by you on the floor, lol), and found it wasn't for me. Personally I'm better with the underlying, but I've learned a LOT since those days, so I'm sure much of my problems came from ignorance. Good luck, Kirk