There's a retail broker that lets you maintain two opposing positions in the same stock, one in a Long account and the other in a short account. I did this for a long time until someone said the SEC would spank me so I kicked the habit. If you want the broker I'll give them to you over PM.
If you are short 1,000 shares in one account, and you buy 500 shares in account that you have legal control over (any trading account), then your net position is a short one. In order to sell the "long" stock, you mus mark it short. That is the rule, it has always been illegal (even though many firms have tried to skirt the issue).... it makes sense to me. New traders always come up with another "new" idea...that is to buy some stock, then sell some short on the way up, and then hit bids with the long stock (this "brilliance" has caused many a trader to be censured, and a few barred from trading). Anyway, if your firm is doing this, you better get ready to send chocolate chip cookies to the owners
It's done completely electronically with no slippage by bullet firms. Where as if you want to trade any option that is heavily deep in the money the spreads are very illiquid. (option market makers know they will be called away and prefer to stay away) Robert
What brand of chocolate chip cookies? Also I trade prop and have bullets and I guess you are referring to short against the box. That would make sense.
I haven't traded retail for many years and am not up to date on the new rules and regulations. But if someone reading these posts would ask there brokers about doing this and found out it's illegal at least they asked. The only dumb question is not asking any at all.
Nitro, So IB allows conversion or what? I don't see how it could be too risky to enter the conversion manually if you do it before the stock start moving . Again here I don't know if it would make sense to do this in real life trading but say you are pretty sure a stock is heading down in the next couple of days and has a large range(tends to fall off a cliff at the open instead of gapping down huge) but you don't want to take an outright short position, instead of buying puts or do a bear spread you could put a conversion on and sell the stock if it sinks at the open, usually it's almost impossible to get short in time when that happens. Is this doable?
Yes! _BUT_, here is the minus, and why you want to do this from a prop firm. First, you have to understand that the margin requirements for having a conversion on at a retail firm are calculated "the retail" way. You see, since you are legging into a "complex" option position, their systems do not know that the position is "riskless." Therefore, you margin requirements, even for a conversion that allows you to short 100 shares of stock, will be several thousand dollars, EVEN THOUGH THE POSITION CAN"T LOOSE OR WIN MONEY AFTER IT IS PUT ON (other than whatever loss you "locked in" because of the bid/ask spread on the options, and stock.) At a prop firm, they understand that, and your "buying" power isn't affected whatsoever! Not only that, they are done as one position, making them much cheaper and faster. HOWEVER, IF you have a properly funded account, and you are able to put these things on CAREFULLY, and you start out by doing a SMALL conversion, and you want to be able to SHORT a stock at WILL, then go for it. I am amazed when people on this board learn a technique and don't want to experiment on their own by simply trying it on small lot(s.) Just do it and see what happens. Don't get flustered - just understand the "position" isn't on until three trades have been made. If you have never put on a conversion, and you have never seen a neutral position, watching your P/L as the stock and two options trade is a real treat - it will put a smile on your face, and more importantly, it will give you a deeper understanding of one of the most fundamental techniques of the professional trader. nitro
I was just wondering if anybody had tried this in a retail account. I am not about to try it until I have more experience in real life option trading and made sure a retail broker will execute it.
Don, Is the Bright Bullet software truly an electronic transaction or more of a messaging system to inform someone at the firm to make the transaction on the traders behalf?