Rolling on expiry day - thoughts?

[Sharkman]

Sharkman - I like your thinking... I didn't trade the low value stocks for long for the very reasons you outline. Commissions and slippage are heavily magnified.

It sounds like you have a pretty good system, Sharkman. You would not be able to do the same with index options, so don't take any notice of me...lol

on the contrary - i now know exactly who to talk to when i one day decide to add index options to my trading repertoire

if they used a tick size of 0.1c for premiums < 10c, then they might be slightly more tradeable, as you might be able to get a fill at 9.8c or 9.9c. although even then commish would still be an annoyance. but they don't, so no point considering it until they do.

Probably one of the only times that Comsec has it over IB in comish, what ur talking about. U could load right up to the fee cut-off limits and get a much better deal than IB......... There is obviously a point where comsec becomes less beneficial then IB.

Sounds like your a few steps ahead of me, I was / am with commsec + IB and I was going to transfer the rest of my $ over to IB next weekend, however I remembered when I signed up that comsec had a "inactive account" fee. How long had you left your commsec account open for without any $ in it?

Thanks

commsec's percentage based brokerage is seemingly better for large numbers of contracts (the theoretical cutoff where commsec works out better is about 120 contracts at a price of up to about 0.85), but is otherwise inferior to IB on account of the $35 minimum - you'd have to be pretty well capitalised if you're going to be doing 120+ contracts on things like CBA and RIO! whereas IB it only costs $6 to do 20 contracts, which is plenty enough exposure for me in expensive stocks like those two. though i have to admit, commsec seem to have improved in the last few years. a few years ago i think it was $60 minimum / 0.6%.

the main issue however is that if you exercise or get assigned, i'm led to believe you have to pay the options brokerage rate (0.35%) on the resulting stock transaction, which is monumentally worse than IB. if i end up getting 2000 RIO put to me, that's $400 in brokerage! as selling cash covered puts over something i'm willing to take delivery of / selling covered calls over something i'm happy to dispose of are basic bread and butter strategies in the playbook that i use quite regularly, that would be a major problem!

i've had zero in my commsec account for 4 or 5 years since switching to IB. never been charged any inactivity fee (there's nothing for them to take anyway! i shut down all my other CBA accounts when i moved to singapore a few years ago). it's IB that has the inactivity fee. have to generate 10 USD per month in commish or you get charged it anyway. won't be an issue for anybody who's an active trader. i don't recall having to pay it even once.

 

[cbc]

Oh yea, 4-5 years... nice.

I'l transfer my $ over. IB is great, especially when trialing a new strategy. I entered into my first US option and only got charged $1.20 or something. That had of been comsec I would av got charged $70.

 

[nardir4]

The idea of risking assignment and taking out puts seems to me a messy possible waste of capital unless one actually wanted the stock.
I had an incident in the last options expiry.I had a June put debit spread on BHP.I legged out on the morning of expiration day hoping the stock would rise during the day.It did and stabilized about 2pm.I waited as BHP often rises towards the close.Alas at 3.20 black full bars started to appear on the one minute tick chart.
At 3.35 a call from my broker."BHP is tanking I think you should close out your short position "OK I replied reluctantly,buy at market".On the second the trade confirmation email arrived BHP started to rise fast.By 3.55 it was back at its previous level.The MM's got an extra $2000 out of me.Yuk.Is it "sour grapes and paranoia" to think I was bluffed by someone.I wonder how many others fell for it.However,the point that is relevant to this discussion is that the final settlement price was significantly higher than the last one minute tick on the live chart,which makes avoiding assignment of at the money options a risky game.
For anyone that is interested,"Trading Options at Expiry" by Jeff Augen has some interesting research he has done on the US market.If anyone interested in this options play who wants a pdf copy(for loan,I have to appear to be legal,on this forum) contact me.

 

[Sharkman]

The idea of risking assignment and taking out puts seems to me a messy possible waste of capital unless one actually wanted the stock.

mostly agree with you there, though i personally take a slightly more relaxed definition, i don't just restrict myself to selling cash covered puts only if i "want" the stock, in my book they also ok if i "do not mind" taking delivery at the strike. especially when IV is consistently high, as it has been for RIO - i've collected some tidy premiums over the last 18 or so months and the stock hasn't really gone anywhere.

when you do want the stock though, cash covered puts can be good if IV is high - just make sure you don't get too carried away and sell so many contracts that your capital base (and margining facility if you use one) can't comfortably absorb a potential assignment.

used this way, a cash covered short put isn't really an "options trade", it's more of an "options investment" as a trader on CNBC said once.

I had an incident in the last options expiry.I had a June put debit spread on BHP.I legged out on the morning of expiration day hoping the stock would rise during the day.It did and stabilized about 2pm.I waited as BHP often rises towards the close.Alas at 3.20 black full bars started to appear on the one minute tick chart.
At 3.35 a call from my broker."BHP is tanking I think you should close out your short position "OK I replied reluctantly,buy at market".On the second the trade confirmation email arrived BHP started to rise fast.By 3.55 it was back at its previous level.The MM's got an extra $2000 out of me.Yuk.Is it "sour grapes and paranoia" to think I was bluffed by someone.I wonder how many others fell for it.However,the point that is relevant to this discussion is that the final settlement price was significantly higher than the last one minute tick on the live chart,which makes avoiding assignment of at the money options a risky game.
For anyone that is interested,"Trading Options at Expiry" by Jeff Augen has some interesting research he has done on the US market.If anyone interested in this options play who wants a pdf copy(for loan,I have to appear to be legal,on this forum) contact me.

i think the problem there is that you tried to get too cute by entering the position as a spread, but exiting it as individual legs, trying to finesse out a quick gain. generally the rule i follow is that if i enter into a position as a spread, i exit it as a spread. by taking off your bought leg and leaving your short leg with a near ATM strike active on expiry day, you left yourself massively short gamma. a short gamma position is not necessarily bad, but a *massively* short gamma one is playing with fire IMHO. except if you do not mind taking the assignment, and have the capital base to absorb it, then massively short gamma can actually be quite good, as it probably also means excellent theta.

the difference between your situation and my earlier QBE scenario was that i had july calls protecting the short leg, so risking the assignment was not as hazardous - if i got assigned on the may calls, to reload the calendar spread, i simply sell june puts to get a synthetic short call position, instead of selling june calls to get an actual short call position. though as noted i still took a bit of a risk letting it run to expiry, as had the may calls expired OTM, a big gap down overnight would have meant a lower premium on selling the june calls to reload the calendar spread. but being long gamma on the july calls would have mitigated that somewhat.

i avoid trying to leg into spreads as well, if i want to buy a vertical put spread for example, i'll look to buy the high strike and sell the low strike at the same time. i won't buy the high strike first, then wait a bit "to see if the stock falls and i can get a better price on the low strike". i used to do that when i first started trading options but quickly found that it bit me more often than it worked in my favour, so i don't do it anymore. if for some reason you feel as though you must leg into a spread, at least leg into the long gamma position first... if you get into a nasty habit of legging in by shorting gamma first, then waiting a while because "i think XYZ is going to move up/down (strike out where appropriate) in the next few minutes and i can get a better price for the long gamma leg", sooner or later the market will teach you a very painful lesson!

although sometimes i will leg out to transform a position into another type of position - i had to do this recently with my bought 30-28.50 NAB put spread. in hindsight i was a fool to have not closed it out when the stock hit 28 - if a vertical spread has reached 80% of its max payoff as a general rule i will almost always close it out. but the MMs were being idiots that day and the bid/ask for the 30 puts was something like 1.98/2.26. i didn't even get a bite at 2.05. fuming, i stubbornly refused to give in and took my offer off the market, thinking to myself "well it's below the low strike now, there's a good chance they'll both expire OTM and i'll deny the MMs the satisfaction of forcing me to cross such a ridiculous spread".

dumb dumb dumb. it proceeded to rally strongly immediately after. so after a minor pullback to the low 29s, with time running out, i decided to sell off the 30 puts and leave the short 28.50 puts open, to try and pinch some quick time decay. but i had 100 contracts open, and even if i wanted to take delivery of NAB (which i don't right now - i need to stay delta negative on NAB as it's part of a pairs trade where i'm long CBA) i'd only be comfortable with taking delivery of 5000 of them. 10000 - no way. too big for my liking. so i protected it by buying july 28.50 puts to transform it into a put calendar spread and maintain a bearish bias, then once the june 28.50 puts expired OTM, i sold july 27.50 puts to transform the position into a july put spread, at least recouping some premium. partially salvaging a less than ideal situation that i had brought upon myself thru my own stubbornness.

the stupid thing about all of this is that even if i had hit the bid at 1.98 on the june 30 puts AND hit the offer on the june 28.50 puts, i still would have collected about 80% of the max payoff! a somewhat painful lesson to stick to your rules rather than getting mad and making irrational decisions just for the sake of trying to spite the MMs!

 

[Thechaser]

Ah yes the joys of rolling on expiry day, if I'm deep in the money I will roll a few days before to get a better MM price, however if its touch and go I will roll before lunch on expiry, the MMs are vicious towards the close in my experience.

 

[Sharkman]

Ah yes the joys of rolling on expiry day, if I'm deep in the money I will roll a few days before to get a better MM price, however if its touch and go I will roll before lunch on expiry, the MMs are vicious towards the close in my experience.

they can be major idiots even days before expiry for deep ITM options - see above - i tried to sell off my jun $30 NAB puts when the stock was around $28, and they were giving a spread of about 1.98/2.26. didn't even get a bite at 2.05. halfway between the mid and their side of the spread is typically where i draw the line unless i really, really want to get a fill. in hindsight i should have made an exception in this case instead of stubbornly sticking to my habits. i didn't, and it cost me.

in any case it seems there aren't that many ASX options traders on here, presumably most are off trading US options with the superior spreads, liquidity and greater sector variety on offer there. so i'm pondering whether to dip a toe in and set aside a small portion of my trading capital to have a bit of a dabble there. i have been trading ASX options for 4 years or so thru IB, so maybe it's time for something new. but i can't justify paying the IB market data fees for US options (i trade thru a discretionary trust so i'd have to pay the professional fees) when i'm only going to be having a "bit of a dabble", at least at first.

i don't suppose there are any sites where one can get the live quotes (even if they're only NBBO and not lv 2 depth) for free? the nasdaq site has live asset prices but only delayed option chains. though from looking at some of the delayed option chains on there last week when the US market is open, one could probably just hit the bid/offer and still cough up less slippage than if you tried working the spread on the ASX!

 

[cbc]

Ay Shark,

I trade the ASX options. IB is to cheap. Took out a call on CBA for 0.17 then sold for 0.25 yesterday. Am currently in the process of learning to hold longer as I'd only been holding for a 10% Return. Then I would watch some of my options go onto make a 100%+ so I figured that I should holdem longer.

Sad to hear about NAB, I only stick to the mid-point or my side. U should av got a fill. How long did you leave ur offer on the market?

Ib have a "US options" bundle which looks like it would be $27 for u and only $1.50 for individuals. Shame ur a not a non-professional.

Are you still trading QBE? Its been forming a nice trend now since last November.

 

[Sharkman]

Ay Shark,

I trade the ASX options. IB is to cheap. Took out a call on CBA for 0.17 then sold for 0.25 yesterday. Am currently in the process of learning to hold longer as I'd only been holding for a 10% Return. Then I would watch some of my options go onto make a 100%+ so I figured that I should holdem longer.

Sad to hear about NAB, I only stick to the mid-point or my side. U should av got a fill. How long did you leave ur offer on the market?

Ib have a "US options" bundle which looks like it would be $27 for u and only $1.50 for individuals. Shame ur a not a non-professional.

Are you still trading QBE? Its been forming a nice trend now since last November.

from what i have read, i believe the MMs typically use an automatic system, whereby the MM traders will set certain parameters in their computer system, then let it hum away and fill orders automatically, adjusting the parameters as appropriate. they won't usually have an operator manning the desk manually filling every trade.

so what i think this means is that if the spread is say 1.68/1.76, if you try to buy at 1.72 and you don't get filled practically straightaway, you aren't going to get filled at that price unless the underlying moves against you (in which case if you haven't changed your limit then you are not really getting the mid as naturally the spread will move with the underlying), or they alter the parameters of the system, which could only happen at the start of the day except if there are any intraday price sensitive events, or a retail trader happens to come along and is more willing to play fair.

if you don't get filled in a few seconds then IMHO you need to adjust your limit or pull your order off the market. if you let it stay there unadjusted for more than a few minutes, i believe the MM systems then flag it as an "unwatched order" or some such. at which point they will simply sit on it, waiting until the underlying moves enough to put your limit almost all the way to their side of the spread, only then they take it out.

in any case if anyone knows how the MM systems actually do work (i'm just hypothesising here!), would be very interested in being enlightened!

given that, i'll usually work the spread, unless the spread is like 1 or 1.5c wide (which does occasionally show in the big six optionables near the money), in which case i can't be bothered and will just hit the bid or offer. so if i was looking to sell say RIO puts and the market is showing 1.68/1.76, i start by offering 1.75. if i don't get filled within about 5 seconds (which would probably happen 99% of the time), i drop my ask to 1.74, wait a few more seconds, and observe. i keep going in this manner until i either get filled or i get to halfway between the mid and their side of the spread, which typically takes under a minute. if i haven't been filled by then i will be forced to decide if i am desperate enough to keep coughing up more and more of the spread, or if i'm fine to leave my position as is and pull my order off the market. obviously i mustn't have felt desperate enough when looking to sell those NAB puts. i let emotion take over the decision making process (emotion of loathing for the MMs that is), and i paid for it.

usually i tend to get a fill at the mid or 1-2 ticks their side of the spread, though of course there are exceptions. and occasionally you'll cop slippage as the underlying might suddenly jump during those few seconds you're waiting for a bite before adjusting your order. so you think you got a fill at the mid but instead the spread had jumped along with the underlying and your order really got filled on their side. although you never know your luck - a couple of weeks ago when i was looking to sell CBA puts the market was showing 1.54/1.60. so as is my usual practice i offered 1.59 and instantly got filled - and this was a true fill not a case of slippage, straight after the fill the spread was still 1.54/1.60. i almost fell off my chair that happens like once every 100 trades or so. may have been another retail trader rather than an MM, though the fact that it was filled instantly suggests it may have been MM spread overlap eg. MM1 showed the market 1.50/1.60 but MM2 showed 1.54/1.64, so MM2 ended up taking out my ask at their mid. can't remember the exact depth though.

still in QBE. i've had a good run in it since last nov as per earlier posts. only downer was getting called away at 14 a few months ago, then not paying attention and shorting puts at 14 to at least collect more premium if not get the stock position back, but hey sometimes resistance levels get breached and sometimes work gets in the way. i rolled again when the june 16 calls expired OTM. bought aug 16 calls at 0.84 and sold 2x the july 16 calls (ie. closing the long position opened back in may plus opening a new short position) for 1.05 total. my thought process here is that the aug contracts will capture the interim profit announcement, and based on last years calendar, will capture the ex-div date as well, allowing an early exercise to strip the dividend if optimal to do so. the july contracts capture neither of those, so rolling to july-aug calendars seemed the logical trade to me. i didn't see much benefit in rolling the far leg out to sept since aug is sufficient to capture that potential price catalyst. i may have to buy back the july calls on thurs this time around though, since i do want to be long those aug calls to capture the earnings announcement.

 

[cbc]

Ay Shark,

Yea, Qbe had a nice run in May and would have make some nice change for some1.

I usually get filled at the midpoint of the spread, I guess that's one of the advantages of the top 10 ere in Auz. You sound like you like to play with the spread. You won't be able to do much of that if you trade on the US as they charge cancellation fees Which can be annoying for me when the spread moves so quickly that by the time you've put your order throu you wouldn't get a fill.

You should start trading on the US, it can be quite addictive

 

[Sharkman]

yeah i heard about those cancellation fees, but those may end up being a non-factor. last week i was thinking over taking a punt on SPDR gold ETF options, looking at buying a 126-131 aug 17 call spread (to my eyes there is a piercing line around the end of june that appears to have consolidated, plus it was supported at 131 in april and may before breaking thru - possibly making 131 a minor support turned resistance level - that's my reasoning behind the trade idea in a nutshell). when i checked the delayed prices on the nasdaq website, at the time the 126 calls were trading at 2.40/2.42 and the 131 calls were 0.89/0.90. with the spread that thin, i wouldn't have even bothered trying to work the spread there, i'd just hit the offer on the 126s and hit the bid on the 131s simultaeneously.

didn't go thru with it as i didn't have US options permissions at the time, and i was too tired after work last week to read thru the OCC manual like IB tells you to before you tick the box to get your account approved for trading US options. i felt i should at least skim it in case there was something important in there that differs from the way ASX options work. i've gotten my IB account approved for US options now (after having skimmed thru the relevant bits of the OCC manual) but the opportunity on the GLD options may be lost already. have to wait for the next one to come along i guess.

when you say you usually "get the mid" on the ASX, do you mean you check what the bid/ask is, then your *initial* order is at the mid and gets filled straightaway, so if you were (hypothetically) trying to sell RIO puts into a 1.68/1.76 spread, you'd just offer 1.72 straight up? rather than trying to work the spread like i do? it could be that i need to experiment a bit and change things up a little rather than sticking to the same spread tactics every trade. i seriously doubt the MM autoquote systems work like this - but maybe when they see me cheekily shoving an offer of 1.75 into a 1.68/1.76 spread, they think i'm taking the piss and flag the order as one that should be cut no slack whatsoever?

 

[cbc]

didn't go thru with it as i didn't have US options permissions at the time, and i was too tired after work last week to read thru the OCC manual like IB tells you to before you tick the box to get your account approved for trading US options. i felt i should at least skim it in case there was something important in there that differs from the way ASX options work. i've gotten my IB account approved for US options now (after having skimmed thru the relevant bits of the OCC manual) but the opportunity on the GLD options may be lost already. have to wait for the next one to come along i guess.

Yea m8, welcome home. Those ETF options seem popular. I might av to look into them. I thought ETFs were a small part of the market. They have lots of weekly options / profit on steroids however I just trade the monthlies.

Yea I'v always jumped in at the mid on the local ere and always got filled. I've had trouble once with suncorp, I know suncorp, enough said.

Also do you have any trouble brining up RIO on your TWS option chain? I keep getting the "no contracts" error?

 

[omad]

Don't worry about cancelation fees with IB on the US market, there's none with spreads, only single options and these have been reduced recently. I'm active, 70+ trades a month and my cancelation fees for last month was 0.06c.