Option Restrictions

Discussion in 'Options' started by Jahajee, Sep 23, 2008.

  1. There are currently no active proposals to restrict option trading. IB did briefly create a restriction on strategies that would have resulted in synthetic short positions - the sale of deep ITM naked calls or the unhedged purchase of deep ITM puts, but they removed it after the MM hedge exemption was restored. All the "conversation" about placing restrictions on trading are currently just talk. If you inhibit the risk management process by restricting option trading you destroy the market in the US. The MM arm of Lehman was so attractive that Barclay's had the OCC clearing # transferred over the weekend. That being said if MM lose the ability to short that will be a huge problem. That would mean that only the biggest MM who have a robust stock loan business would be able to complete the parity model. This would damage option market liquidity - especially in equity and ETF options.

    As to overall profitability I have been in the options market from day one and there are thousands of individual investors and hundreds of institutions that continuously do well in the options market. I would be very cautious about benchmarking a rate of return. What you will expect to earn with the risk you take. Throwing around a rate of return is kind of foolish until one quantifies risk. I knew a trader at the CBOE- when I worked there- who got fired after making his firm a little over a million dollars. When he told me the story I actually didn't believe him. When I asked his boss why he fired him and did he actually make the firm a million dollars his boss said he actually had made the firm a million dollars. The reason they fired him is that he took five million in risk

    Alex Jacobson. Sent From My Blackberry. 1(917)2243711 ajacobson@ise. com

  2. Alex,

    IB did not notify its customers (at least I was not notified) that the restrictions ended.

    I believe the restrictions were tighter than you mentioned: No call sales, regardless of strike (DITM not a requirement). And no exercise of any put.

  3. Rules very unclear even now. Where did you see a change in IB's limitations?

    As for risk. Its the same as some clown betting 100k to show on a horse to collect 2.10

    He'll win most of the time betting heavy favorites, ($5000 profit) but if more than one out of 20 run out of the money , he loses. And if is happens early in the stream of bets, he's broke.

    This goes on all the time in all markets. Ask LEH.
  4. I received an electronic message from IB when I opened my trader workstation.