stefonk
33 posts
msg #100802
- Ignore stefonk |
5/19/2011 10:27:31 PM
Are option spreads the same for all brokers or is it different for every broker? I want to know if its fixed for all brokers or is it broker specific. The reason is that some stocks have unbelievable spreads, while some have small and I don't understand why. I know some brokers make more money this way, so why is there a commission. If it different for every broker, can anyone tell me which broker has the best option spreads.
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wkloss
231 posts
msg #100803
- Ignore wkloss |
5/19/2011 11:22:21 PM
Best in what way? How are you defining best?
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stefonk
33 posts
msg #100804
- Ignore stefonk |
5/19/2011 11:58:03 PM
I mean best in option price spread. Low spreads to be precise.
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gmg733
788 posts
msg #100823
- Ignore gmg733
modified |
5/20/2011 6:12:52 PM
The spread on options are basically the same on any platform/feed and are set by the market makers. The reason some are wider than other is due to interest in the options or perceived risk in the instrument by the mark maker.. Thinly traded options have wider bid-ask spreads while heavily traded, think SPY for instance, are penny wide. A market maker will use bid-ask spreads to manage their risk in the trades as they broker them.
I hope this helps.
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stefonk
33 posts
msg #100826
- Ignore stefonk
modified |
5/20/2011 10:10:41 PM
That makes a lot of sense and thank you very much. I have another question, sometimes I get lucky and predict the directions of earnings correctly like in ARUN and RRGB today, but instead of making money, I ended up in slight red. I don't know what I am doing wrong, but I need some help on this. I have read so much about the Greeks but I am still missing something in Options. Thanks guys.
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drew9
171 posts
msg #100828
- Ignore drew9 |
5/20/2011 10:42:34 PM
I might mention that I use Interactive Brokers and they specialize in options. Probably have some if not the lowest commissions as well. Point I wanted to make was I am always very pleased at my option executions. They are the the best for price improvement by far. I really don't remember the last time I got filled at the Bid or Ask. They are almost always better. If you can take the time and place the order in the middle, I often get filled.
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wkloss
231 posts
msg #100832
- Ignore wkloss |
5/21/2011 11:56:07 AM
stefonk,
Ending up in the red could also be the result of time decay and/or your choice of option strikes. Do you look at the delta of the strikes you choose.
You can get paper trading accounts at OptionsXpress, Thinkorswim and several other brokerages that specialize in options. Almost all of them offer free online educational seminars. drew9 probably knows if IB does. There is a lot more to trading options than most people realize at first.
Bill
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gmg733
788 posts
msg #100846
- Ignore gmg733
modified |
5/22/2011 8:05:03 AM
stefonk,
The reason you didn't make money is hard to tell as it depends on the instrument you purchased. I suspect you got nailed by vega crush. Since earnings events are highly volatile, the market makers will elevate the implied volatility in the option (uncertainy) right before the event making the options 'expensive'. Once the event happens, a lot of the volatility comes out of the option, ie. vega crush or vega trap.
One way to mitigate vega crush is to do a spread. This way you are buying and selling volatility. It is not a panacea, but it helps.
I NEVER buy naked calls or puts, nor do I sell them naked either due to margin requirements. I would paper trade until you get the hang of options because you will lose money if you don't understand the greeks.
I don't trade earnings. Since earning plays are Vegas type trades, a straddle will make you money going up or down, but you will need a significant move before you reach a profit. My .02.
I'm working on my earnings strategy. The problem is I am already making money. :) Not much motivation to change something that works.
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FuriousThug
256 posts
msg #100872
- Ignore FuriousThug |
5/23/2011 4:58:14 PM
I wish someone had told me when I first started trading options that naked strategies (both long and short) are a recipe for disaster. Naked options strategies are even harder to trade than the underlying because not only do you need to pick the direction the underlying will take, but you battle time and volatility decay...so you can be right about 2 or even 3 of those things and still lose.
With options, the best piece of advice is: If you buy something, sell something. You can still maintain your directional bias with spreads, but the drawdowns come out a hell of a lot better than with naked strategies. Of course, spreads require a pretty extensive familiarity with the greeks and option behavior because pricing has little to do with the fundamentals of the underlying.
Also, familiarize yourself with some of the options strategies with which an individual trader can compete with the institutions. Individuals face huge disadvantages in executing successful options strategies, but there are certain characteristics of options that take advantage of pricing inconsistencies and statistical probabilities that an individual can use to narrow the technology/capital gap.
FT
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gmg733
788 posts
msg #100888
- Ignore gmg733 |
5/24/2011 4:05:18 PM
The way I have consistently made money is by using options and spreads that can optimize a move in 2 of 3 possible directions. The underlying goes up, down, or sideways. Trade strategies that optimize 2 of the 3. You'll make money.
Putting the odds in my favor!
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