Thanks for your input Knight, but I'm not sure I follow the rationale for the 75 cent cutoff. At IB, we pay 2 cents a share to trade options. So if I have a 15 Call and the stock is 15.40 or 15.70 , why in the world would I not want to excercise, and why is it not automatic. It's absurd. If I held 10 options that would be a $700 (at 15.70) gain for a $20 commission. The onus should be on a holder to call in and say he does NOT want the stock, as that would be the less likely scenario. I suspect the MM's are making out like bandits on this one and don't want the rules changed. The reason I was suckered this one time is I have been trading options for a while, but never had one go out closer than $1 from the strike. (I'm doing mostly covered OTM puts). I was 'assuming' the # was 25 cents or so, and didn't double check. How many stocks are selling for under $15 , and even < $10, where 50 cents is a large % of the stock price. A 75 cent cutoff is unreasonable, especially with low priced stocks. Will probably write to the OCC and see what c&b story they have for me
What you ahve to understand Stock, is that not every retail customer out there has the low commission costs that you do. If you check the websites of the various brokerage houses and ascertain for yourself the money that they are charging for exercising and liquidating the respective underlying, I think that you'll be unpleasantly surprised. I agree that these charges are outrageous and should be lowered, but that is the way it is right now. Did you know the b.d.'s charge their customers both legs on a spread, why do you think that is, considering that it is done as a package? The real culprits aren't the market makers. As for making out like bandits because the options aren't exercised when they are less in the money than the rule, that isn't true because I've already hedged myself once I trade with you, therefore any p&l is a wash. In fact I'm trying very hard to flatten out my position prior to expiration. Do you really think that I'm going to expose myself to the risk of being naked over the weekend for the reward in question. Does it seem like a good r/r ratio to you? I wouldn't be in business very long if I traded like that. The Knight.
knight, been doing a bit of travelling and am in NY for the week. i just spent a good part of the day watching and talking about the ISE and option executions on the various exchanges and have to think the ISE is going to gradually take away volume from all exchanges. I had a completely opposite experience from you have been posting. As far as liquidity and size. Most markets are 100 up. I was watching the qqq's which were 2000 up and 10 cents wide. I also watch a number of 1000 lot executions that were instant and honored. your issue might be that you are a far away market maker and the rules of the ISE allow PMM's to do 1 lots against them. Most PMM's will honor the size shown but a few I hear will play those games. I think this will get better as well as there are discussions going on amongst the exchange and market makers working on ways to improve size and liquidity. for retail, what you see is what you get. if you hit a price you are filled. For market makers you may get smaller size but given the number of trades that I saw which were market maker to market maker, size is being honored. I was mistaken in another post about a PMM not allowing a better quote. Fact is if a secondary market maker shows a better price in any bin that price has to be shown and honored. Once a secondary market maker commits to a product they are required to quote as well. Spreads: there is a bulletin board that is available on the ISE now for strategy trades. It was made available a month or so ago. It does allow for spread trading and while not as flexible as the floor, I think it will become very liquid because of speed of execution. If something is shown, it must be honored. Your idea of transparancy is knowing the counterparty. My idea is knowing that a price on the screen will be honored, price time priority will be honored, executions instantly reported, etc. No games. Busting trades is another issue that I can take up when I have more time. The growth of the exchange is pretty impresive and while I may not agree with all the rules, they certainly have made much more progress and headway towards being fair and improving their product than I had expected. The following text was pulled from a press release from the ISE which you may find of interest. Growth is pretty impressive. ISE highlights in 2001: · ISE averaged 370,689 contracts daily in the fourth quarter, a 16.3% market share in the issues it trades and a 12.5% overall share when all listed equity and index options are included. · ISE market share in December increased to 17.6% in its listed issues and 13.6% for all listed options products. · ISE set two new market share records on December 28, 2001: 22.6% in its listed issues and 18.1% overall. · On May 29, 2001, 1 year after launch, ISE traded its 25-millionth contract and its 50-millionth contract on October 3, 2001, doubling its first year's volume in only four months. · By year-end 2001, ISE traded in excess of 72 million contracts since launch. · ISE's highest daily volume occurred on September 19, 2001 when 575,195 contracts traded. · ISE traded 436 issues at the close of 2001, up from the 178 issues that were listed at the end of 2000.
Scenario: I'm long 20 DEC 10 calls of a XYZ The stock goes out at 10.50, and I oversleep and forget to excersise. On Monday, the Options MM (or whoever sold these calls to me, and I know its a random allocation on assignment), who presumably was net LONG xyz as his hedge and expected to be assigned, finds out he never got called, and now can sell his stock and book a $1000 profit. Sure, there's some tiny overnight risk, but if you do this 100 times, you'll book large coin. If I'm leaving 50 cents on the table, someone is picking it up.
If an option closes .25 in the money they are automatically exercised, so the risk is minimal. Correct me if I am wrong as this applies to retail customers. ???
Hello Don, automatic option exercise is 3/4 pt for customer (public) accounts, and 1/4 pt for market maker/professional (other) accounts. Stock, you "over slept and forgot..." and now it's my fault because you didn't take responsibility for your own trade, come'on. As for the risk being small over the weekend- In the current market anything can happen that can really hurt you if you are on the wrong side (anthrax scare, escalation of war, capture of Bin Laden, interest rate cut, etc) Your example -- expiring strike of 10, stock marked at 10.5. Am short 100 10 calls, long 10,000 stock against. Am assigned on 50 calls, therefore am now long 5,000 stock, when I would prefer to be delta neutral (assigned on all 100). Market for underlying on Saturday morning (when I discover what my position is) is $2 wide, therefore I put in a limit order that won't probably be filled. Stock opens down 3/4 on Monday morning. How have I done? Ans. Made $2500 on calls, lost $3750 on stock. What is the stock in question was Enron. It could have been a whole lot more don't you think? I'm not here to make stupid trades, I'm not here to trade 'em up and take a shot. I constantly look to manage risk and to establish how I can be hurt (even put out of business) before I consider the upside. I knew a guy who was put out of business overnight by being short 400 far out of the money calls, in a stock that had been trading in a narrow range for over a year- tender offer twice the price of the stock. Bottom line, there's no such thing as a free lunch. Def, I honestly, don't have the time to do all of the research into the ISE, foreign exchanges, Korea, Hong Kong, etc. that you obviously do. I have told you what I, and many others that I work with have seen. I asked you a simple question regarding what your experience trading on the ISE was, and you answered me with statistics and studies. I have had the privilage of being associated with the CBOE, AMEX, PSE aswell as the daytrading and retail brokerage side of the financial business for many years and I am telling you that six months ago, when I last traded on the ISE, it had a liquidity problem. As for transparancy, I simply want those on the other side of the screen (or pit for that matter) to be stand up and honor their markets. Be a market maker- give fair two sided markets and trade those markets with liquidity - I think 100 contracts and/or 10,000 shares should be a minimum for any market. Additionally, I believe that I have a right to know who (the firm) I am trading with, that is information that I shouldn't be classified, but should be open and disclosed. As for my comments on the advance of electronics, never have I said that I think that this is a bad thing. In fact on my last post to you I stated: "I like the concept of an electronic exchange, I really do. It has just been proven to me thet the liquidity is lacking and must be improved. Ultimately the market must give the customer what s/he wants - liquidity, fair markets and rapid fills/confirmations - any entity that does not, be they electronic or floor based, will not survive." For everyone that has responded to this post thank you. However I simply do not have the time to continue in this fashion. I will check the board on the weekend and try to do so during the week. If I don't respond in a timely manner, I'm not dodging your question, I just don't have the time to prepare statistics and research reports to respond to comments/gripes on a message board that I originally posted to gain new contacts in the NYC region. Take care all. The Knight
I run a desk at WorldCo and am interested in hiring day traders. I will look at any resumes ranging from fresh college grads to fully licenced experienced traders. A resume can be sent to wallstremus@yahoo.com. Thanks.
Since you are hiring people to work at WorldCo (as employees, I assume), would it be appropriate for me to send you potential traders that are interested in salaried positions? We get so many inquiries from potential traders that want a salary, we cannot possibly sponsor all of them (we can sponsor some, but most are independent traders, of course). If you are truly hiring people, I would like to give them a place to go. Thanks!!
lol, Knight. Item 1 - I didn't oversleep at all, I simply was not aware of the ripoff being perpetrated on retail options traders. Thought it was 25 cents. As distiguished a luminary Don Bright WAS ALSO UNDER THE WRONG IMPRESSION. It also dawns on me that if MM's are so concerned with taking no risk and being flat as a pancake every waking moment, they would be in FAVOR of a small automatic execution. Think about it. I know a scam when I see one. This is a scam. Nice one too. Item 2- Tell you what. You give me a half point (or up to 74 cents as it is) edge on a $ 10 name every expiration for the next 12 months. I'll put up 100k each time. Come monday morning , we settle up at the open price. Offer open to all comers, though I suspect no one here is going to take me up on it.
stock777, i'm not sure why there is a difference between the retail and mmkr rules on exercise/assignment but knight may have a point given the excessive commissions of days gone by. However, there are occasions when you would not want to exercise an option on expiry. An example would be when a stock gets run up on the closing print. Knight, I gave statistics but I have now spent the past two days watching the ISE and the liquidity is real. Maybe it wasn't great six months ago but after seeing thousands of trades I am convinced liquidity and execution speed is not an issue. BTW, if you are seriously considering trading size off floor, you will sending customer orders and thus any size shown will have to be honored. The statistics I gave were to show the rapid growth in volumes as the markets realize it is a more transparant place to trade. As for knowing the counterparty - why should you know who you trade with? I have experience trading the markets on the electronic side where you see the counterparty and where you don't. I personally prefer the anonimity where the counter party is not shown. For starters it stops brokers from calling up every time they see a market where you a bid in an attempt to extort a commission. It also avoids BS calls from other market makers trying to bust trades that shouldn't be busted (read free options) . Finally, it keeps other firms from attempting to calculate your positions. I don't see the benefits of having your name out there if any price on a screen needs to be honored. In any event, that's how I see things. Hopefully you'll get the opportunity to try to lay off some of your trades on the ISE and be pleasantly surprised.