What I've learned so far about switching from a futures
brokerage to an equities brokerage:
- There's a universe of ETF's out there!!
- You can trade options on the SPY, and you can trade options on
the S&P500 cash. Both trade till 4:15 pm (at least at TD
WaterHouse they do).
- If your short SPX options expire in the money, your position
goes to cash. But if your short SPY options expire in the money,
you end up having a SPY position.
- margin requirements for naked short options is absurd. But
far-out-of-money vertical spreads still give an excellent
return.
- First I took some SPY (vertical spread) option positions, THEN
realized that commission would be much less if I took SPX (verticaL
spread) option positions instead, THEN realized that the strike
prices for the SPX options are further apart, so the margin
required is greater, so after doing the math, it turns out that (in
spite of a bit more commission) the % annualized return for
SPY options vertical spreads is much better.
- I've lost some luxuries - you can't hedge positions with the
underlying. Well technically you can, but it doesn't improve your
margin requirement anyway. No more 24/7 Globex trading - get some
healthy sleep instead.
- margining in general is no longer sensible - eg double
margining for butterflies and iron condors - (I understand there
are some "option friendly" brokerages who don't do this, but for
now I'll stay where I am. ) Another example - a short option in a
later month is margined as naked even if you've covered it
with a long near-month option position -- ie no more reverse
calendar spreads.
LOL, I take it by "absurd", you mean "awesome"? I'm old. When I
say "absurd", I mean, well, "absurd". I'm already using every bit
of margining that my account will allow.
Not trying to sound complicated - it's taken me lots of years of
experience to learn option strategies. I'm rather battle-weary.
Another luxury though, is having my bank account and the
brokerage run by the same bank. I can real time with my
laptop at no charge, transfer funds back and forth. No
more worrying whether the mail carrier has misplaced my cheque. No
more waiting and listening at the door for courriers. No more
deciding whether I should do wire transfers. No more driving to the
bank.
Yep plus when things really get rolling the banksters that be
love to ramp the market enough to cause forced liquidations, for
them that is a major win, high five!
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Equities brokerage versus Futures brokerage
Posted by sschulman on 7th of Aug 2012 at 06:28 pm
What I've learned so far about switching from a futures brokerage to an equities brokerage:
- There's a universe of ETF's out there!!
- You can trade options on the SPY, and you can trade options on the S&P500 cash. Both trade till 4:15 pm (at least at TD WaterHouse they do).
- If your short SPX options expire in the money, your position goes to cash. But if your short SPY options expire in the money, you end up having a SPY position.
- margin requirements for naked short options is absurd. But far-out-of-money vertical spreads still give an excellent return.
- First I took some SPY (vertical spread) option positions, THEN realized that commission would be much less if I took SPX (verticaL spread) option positions instead, THEN realized that the strike prices for the SPX options are further apart, so the margin required is greater, so after doing the math, it turns out that (in spite of a bit more commission) the % annualized return for SPY options vertical spreads is much better.
- I've lost some luxuries - you can't hedge positions with the underlying. Well technically you can, but it doesn't improve your margin requirement anyway. No more 24/7 Globex trading - get some healthy sleep instead.
- margining in general is no longer sensible - eg double margining for butterflies and iron condors - (I understand there are some "option friendly" brokerages who don't do this, but for now I'll stay where I am. ) Another example - a short option in a later month is margined as naked even if you've covered it with a long near-month option position -- ie no more reverse calendar spreads.
- Overall though, I think it'll be just fine.
.....Susan
Susan.... you might want to get porfolio margining
Posted by zach06 on 7th of Aug 2012 at 06:32 pm
If you know how to hedge and are doing complicated reverse calender spreads and stuff... you can get some absurd returns using portfolio margin
Title: portfolio margin Hi Zach06, LOL, I
Posted by sschulman on 7th of Aug 2012 at 07:06 pm
Hi Zach06,
LOL, I take it by "absurd", you mean "awesome"? I'm old. When I say "absurd", I mean, well, "absurd". I'm already using every bit of margining that my account will allow.
Not trying to sound complicated - it's taken me lots of years of experience to learn option strategies. I'm rather battle-weary.
Another luxury though, is having my bank account and the brokerage run by the same bank. I can real time with my laptop at no charge, transfer funds back and forth. No more worrying whether the mail carrier has misplaced my cheque. No more waiting and listening at the door for courriers. No more deciding whether I should do wire transfers. No more driving to the bank.
.....:-) Susan
I would be careful of using every bit of margin in your account
Posted by zach06 on 7th of Aug 2012 at 09:23 pm
Leave some room . there might be a trade you can't refuse and you are out of margin.. then what?
Yep plus when things really
Posted by steveo on 8th of Aug 2012 at 11:08 am
Yep plus when things really get rolling the banksters that be love to ramp the market enough to cause forced liquidations, for them that is a major win, high five!