Robert, Why do you say it gives an opportunity for MM's to screw the public ? Trading stops at 4PM ET or a little thereafter, so noone can buy your options if the stock makes a move in after hours . Or am I missing something ?
ah, didn't realize that Asia had T+2 settlement. Interesting. I see your point about those that get pinned as well.
It is a pretense to act like you can set-up as a retail trader (no matter how sophisticated your retail set-up is) and get every last perk that those who sit in a professional setting receive. The rules are pretty clear that the de facto expiration for retail clients is 3:30 Central Time. The fact that those on desks get the extra hour is just part of the cost one pays to have the luxuries (and there are many) that your non-professional status affords. There are -- and always have been -- many perks a pro gets. Yet you can press for some as a retail client and get them for less rigid firms. But the key is to press for what you want when you establish the relationship. Years ago -- pre-computer execution -- when I set-up to trade securities at one of a handful of retail clients of a small century old partnership (an amazing firm I desperately wanted to execute for me) I hung tough on having a type three account that received short interest. I was no where near large enough to have any form of prime brokerage arrangement and pocketing the interest on shorts held overnight was a common "house edge" firms imposed on many retail clients. In our initial meeting in their conference room their managing partner made it clear to me that they considered type 3 interest a deal breaker considering the great commission rate I had already locked in. He told me it was simply a pain in the ass for them for what amounted to pennies. I suggested that they only pay me the juice on the days that there was $50,000 or more in the "Three Account" to pay interest on. He laughed and said "so you are prepared to let us keep the pennies but think you are entitled to the folding money". I had come up with a reasonable compromise and felt confident telling him that was the case. He put out his hand to seal the deal as I suggested. Shortly after I cut my deal the firm went from clearing their own business to a very large clearing firm. I was grandfathered in and my deal stood up. Obviously IB is non-negotiable on retail accounts. If you want the comfort of the "Rock of Gibraltar" yet stay want to stay retail you pay a price. It is a whole lot tougher today to get to see the guy in charge at even the smaller firms than it was 20 years ago but if you are willing to deal with a smaller firm you may get a few perks you can't get from IB. The key is GO SEE THEM. Make an appointment with someone who has authority at a smaller firm and tell him want you want in person. Do it on the phone and chances are you get nothing ... do it in person and you'll probably get some of it. I am not trying to pretend I am teaching you anything you don't know; you are obviously a sophisticated guy. I'm just reminding you that if it is important to your business you need to negotiate terms you like ... in advance.
"This is a silly complaint, IB is doing nothing wrong here." - Why? why is it silly to want to be able to exercise an option that is still within the life of an option? How do you know clearing firms (lets take IB out of this) is doing nothing wrong? do you have anything at all I mean anything to back up your opinions posted as facts? "Effectively what you are asking for is to get free exposure with no risk and without paying anything in time premium" - once again for those that don't understand, the option HAS NOT expired yet. "Market makers face significant pin risk at expiry, and every windfall from the market going their way from 430 to 530 is on average going to be offset by an anti-windfall from opposite positions." - not in the least relevant to this thread and I have no idea why you added it. Give some facts not opinions if you want to add to the thread please. Make sure they are relevant as well
Could you please show the source of your information? I am not saying your wrong but it would seem that clearing firms could close out their own books without the OCC if they wanted to.
Def, Does IB have to go through the OCC to exercise an option is is there any other method/way to exercise without the OCC? Having this one question answered would clear this up for me quickly. Thank you Robert
Trade2live, Respectfully, you are missing something but I do not mean it in a rude way. Trading does not stock at 4PM actually. Trading for most stocks on any given day ends at 8PM. regular trading hours may end at 4pm ET. For example, BP ended at 4pm ~39.83 but in after market trading went above 44 so anyone that owned calls on the stock would have had a chance to exercise their options in the money and shorted the stock for a gain. On the other hand anyone who exercised the 44 puts exercised them BEFORE trading for the day had ended and ended up losing money compared to waiting until after hours trading was over to either exercise or cover with a buy of BP. As an owner of an option of a stock (especially one that is thickly traded in after hours )I would usually not want to exercise at 4PM ET when the option is not yet expired. You may not be able to sell the option but since it is still alive if your not wanting right at 4PM to lock in what you have then the correct choice is to wait and see what happens in afterhours. (think of those that had the BP May 44P auto exercised on them only to see the stock trade higher in after hours). You have nothing to gain unless your exercising to cover/hedge and everything to lose by not waiting until the last minute to exercise. If the price continued to drop there would have been nothing lost waiting to exercise as your price is locked in. (For IB at least because of price advantage traders using IB have compared to other brokers who either don't have an automated way to exercise and/or charge a large fee to give an exercise instruction) So its not the ability to sell the option (which I have no idea why some market ECN has not picked up on the idea of having outside hours for trading options but I doubt that someone will not open that door up shortly) but the ability to have as much information as possible before making your choice of exercising.
Swan, Great post and I too remember negotiating commissions from $35 per ticket down to $25 which back in the mid 80s was not bad for retail and my 50 cents I had invested in the broker account. In the world of electronics and a competitive landscape I may not fully agree that it is all that pretentious to "get it all" In the chat room I am in for example on average the larger accounts are retail compared to the prop traders. I don't know this but would guess that the average first year trader using their own money has a smaller account than the average first year full time retail trader. Obviously baseless but when considering the PDT rule my theory I believe does have some merit to it. I like IB for a lot of reasons, including the short availability and the "all in one" accounts with futs/stocks but I thank you for your post and I think I will be looking at some back issues some professionally geared (buy side) magazines to see if maybe a change is in order. I have tried to negotiate some better pricing than IB and I have had others beat IB by a small amount without a problem but if the only thing that changes is commissions and by only a small amount it is not worth making a change. Especially if I have to go from SiPC protection without any hoops to getting a S7 and all the other BS I think if someone would have said to a specialist on the floor of the NYSE 20+ years ago that the average person will be able to make a market in IBM and capture the spread and have a zero transaction cost for the trade they would have looked at you like your crazy. But here we are and look at the increase in volume and the transaction costs for the retail person now. Anyone that has read the June Active trader knows that I remember 20+ years ago what it was like Thanks again for your very insightful post Robert