Does anybody have any retail option trading stories from the 1980's? What were the commissions like? How did you get quotes? Were they monthly expiry - or less frequent? How was the choice of strikes?
Retail commissions were based on the value of the option or stock and were typically around 5%. Retail accounts called their broker. The broker had either a quotron or bloomberg. There might have been others like Track data. They were in cycles. Jan/Apr/JUL/Oct as one example for AAPL. Other options had other 3 month cycles so every options did not expire on the same day. Every 5 point for most stocks.
I'm Canadian and I've been trading full time since 1990. In my third year of University (1988) I was self teaching myself about options. Closing quotes (bid/ask) from the Canadian Options Market would appear in the Globe and Mail. While others were partying nightly I would go to the library and research old papers and noticed that some of the options were offered for less than their intrinsic value (LOL). Also, live quotes/trades would appear on the local rogers channel. I had a TD Greenline account and started to watch some of these options and would buy the undervalued ones. It would take a few minutes to get a fill - then I would trade the stock and then instruct the trader to exercise the option. "But you just bought the option sir" - too funny. I recall one situation I bought put options on NOMA (the puts were listed in Vancouver). They were intrinsically worth $2.75 but offered at $2.00. I bought 20 lots and then bought 2,000 shares and then exercised the puts. The idiot MM would only move the puts up .05 (offered now at $2.05). So I did this three times before the dope got the message. Over $1,000 in commission! but still managed to make about $2,000. The next day I bought the newspaper - photocopied my trades (Volume = 60, Open Interest =0). This was taped to the door in my room as a constant reminder to never overestimate the intelligence of others. After graduation, I worked on the floor in Toronto for about 9 years. Trading from home ever since. Got many many trading stories. BTW: The constant reminder listed above applies to today's trading as well. Clearly different types of trading today but opportunities nonetheless.
Without our depth and liquidity, you would have had no one to trade with. Same today. Get rid of the option MM and options might have no paper at all anywhere close to current values.
re MM BS: Exchange rules have always discouraged Customer to customer trading (in the 80's and today). Whether it was non-firm quotes then or PIP (Hidden electronic Markets), payment for order flow, co-location and higher professional customer fees today- it is very difficult to trade against customer order flow (as a customer). This anti competitive behavior have exchanges/MM acting like casinos and not what Exchanges are supposed to be about (free and fair markets). Heck even the mid tier MM groups are backing out because of this anti competitive crap. I had a debate with the head of a MM firm in the early 2000's about PIP rules that were being introduced at a new Options Exchange. I predicted that these rules would kill competition and he and many others are now admitting it to be the case today. He recently pulled out of the MM business because even his firm was only able to trade against - in his words -"sophisticated" customer order flow and thus his business was no longer profitable. This two tiered market is precisely why there is a lack of liquidity with larger bid/ask spreads AND this is EXACTLY what Exchange membership (ie MM's) want Name me ONE business on this planet that charges more (per unit)- when you do more business with them? Answer: Option Exchanges Why: To discourage competition Heck- there are many rules in place that discourage "non membership" competition. So spare me the "who would we trade with". This is what they want. Anyone "in the know" will never feel a sense of thanks to the "crooks" of the market making community (Past and Present) LOL - that rant felt good.....
To repeat much of what Robert Morse said - Retail commissions cost an arm and a leg. - You had to call your broker by phone and you often waited for him to get to you (other calls). - At my broker, quotes were available through an automated phone sysyem where you punched in tedious codes for the symbol. The "2" key on the phone keypad is A-B-C so A was A1 and B was A2 and C was A3. Stock symbols weren't too bad (6 clicks for NYSE, 8 for 4 letter NAZ) but options were nasty since you had to also add more code for the expiration and strike. You could also set up a watch list but you had to cycle through it as it played. - There were no weekly options or LEAPs - Everything was on a 3 month cycle Jan-Apr-Jul, Feb-May-Aug, Mar-Jun-Sep - If I recall correctly, strikes 2-1/2 pts apart were available if the stock was under $20, 5 pts apart from $20 to $100, 10 pts apart above that andmaybe even $20 above $200 (?) While not the 80's, LEAPs were introduced in 1990. I don't think that they were pricing them correctly because diagonal spreads were much more profitable then. And the pièce de résistance was the crash of '87. Market makers walked away. Option and stock spreads were Holland Tunnel wide - dollars not cents. The market was so fast and so wide that no one had a clue where it was and you couldn't transact based on anything other than a wishful price. You were lucky if you could get through to your broker since their phones were overwhelmed. Option expiration was the Friday before the crash. The technology was so overloaded that many brokers couldn't tell you if your positions were assigned or not. I had a covered call position that expired ITM and should have been assigned and Paine Webber wasn't able to tell me that I wasn't assigned until 8 days later. By then, it had dropped 3 points and when I threatened arbitration, they made me whole. Fun time. NOT!