Whick broker will give you approval to trade spreads?

Discussion in 'Options' started by silent_tunes, Oct 28, 2010.

  1. Unless you ask for a better rate. Or at least that's what I did with ThinkOrSwim.
     
    #21     Oct 29, 2010
  2. Go to optionshouse . The best deal overall, good and easy to understand trading tools,cheapest commissions and good support.
     
    #22     Oct 29, 2010
  3. dcvtss

    dcvtss

    What about a long ITM/ATM call short OTM call ratio spread? There's more out there than verticals and IC's...
     
    #23     Oct 29, 2010
  4. rew

    rew

    It was obvious from the context that we were talking about plain vanilla vertical spreads.
     
    #24     Oct 29, 2010
  5. donnap

    donnap

    Yes, it was.

    rew, I get your point and during my early years I preferred debit VERTICAL :D spreads for that reason.

    But generally, there's no difference between the two equivalent spreads in regards to costs or R/R - at least at the brokers I've looked at.

    Using the same strikes and expiry with $1 apart spreads, say we can buy the debit for about .70 . The equivalent credit should be about .30.

    With the debit the cost is .70. With the credit the .30 goes to cash and there's a 1.00 margin req. for a "cost" of .70.

    For R/R there's no need for brokers to differentiate between the two - it should be up to the trader to understand the risk.
     
    #25     Oct 30, 2010
  6. spindr0

    spindr0

    You might wanna rethink that one...
     
    #26     Oct 30, 2010
  7. Back to level 0 for rew.

    BTW, are the mainstream brokers still putting cash-covered puts in a more risky category than covered calls?
     
    #27     Oct 30, 2010
  8. ...good one...:)
     
    #28     Oct 30, 2010
  9. rew

    rew

    Of course for the credit spreads I was talking about the usual case where both options are OTM. A debit call spread that costs 0.70 with OTM calls is indeed synthetically equivalent to a credit put spread at the same strikes. The net credit for the ITM puts should be about 0.30. However, usually the liquidity for ITM options isn't as good as it is for OTM options, so in real life you'll probably get a slightly worse price on the ITM credit spread. I rarely find it worth my while to use the ITM synthetically equivalent version of an OTM spread.
     
    #29     Oct 31, 2010
  10. rew

    rew

    Oops, I hit submit before I was finished...

    Anyhow, you are right that if a broker only allows debit vertical spreads and someone wants to sell a credit spread they would simply buy the synthetic equivalent, replacing a margin requirement with a more expensive option spread. So there's no point to such a restriction, the broker should just make sure you understand the margin requirements and worst case loss and let you do what you want.
     
    #30     Oct 31, 2010