1. Try clicking on the name of the most recent article in the column on the right. This will remove the "Archives" list.
2. Try right click on the chart itself and open it on a separate window.
I am sorry that I cannot always make the chart small enough to fit neatly on the left column. I want you to be able to see the details I want to point out.
I Hope this helps,
Juan
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I have been in discussions with Fortitude about the entry of the DNA trade. In this blog, I would like to show you my entry using OptionsXPress (OX) and the alternative use of IB, which may offer a great way to enter and exit PCCRC trades.
I can't go into much detail about hthis because the discussions may be long and boring, but I will make some key points.
Then PCCRC that I like are proporcionally, 2 long calls and 2 long puts back month, and 1 short call and 1 short put front month. OX does not allow the entry of uneven combinations like this, so I am forced to enter the trade in parts. One approach is to enter the long portion first, as a straddle, and then the short portion as a short straddle. This requieres more cash than the required for the final trade.
Here is an alternative approach which has been proven useful, since it does not require more than that required for the final trade. Further, it takes advantage of the intraday volatility variations. For the DNA trade, I opened a Condor to include even number of contracts for all legs of the trade. Specifically, I bought 10 June 90 calls and 10 June 90 puts, and then sold 10 April 90 calls and 10 April 90 puts. The position was executed at 9:47 am, shortly after I placed it, at $3.95. As it turns out, the positions was soon after profitable, reaching $4.1/$4.8 later on. The long portion filled near 3pm, as volatility declined. Here is the activity in my account today:
The resulting position has the 4 legs. The cost of the longs are averages of the two fills:
My total cost of this position was $77.91.
Here is the resulting trade, at the end of the day.
In my discussions with Fortitude, it has become clear that Interactive Broker (IB) may offer a better commission pricing and the ability to enter the whole trade as a combo.
Here is my e-mail exchange with Fortitude:
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Fortitude says:
Juan,
As I have mentioned on the Blog.
Please download the attached document.
Do you have anything like this on Options Express or the new broker you are using. (I forget the name of your new broker.)
Best Wishes,
This is the screen I am watching. Notice I have loaded both trades, firstly the back month being the Jun06 expiration and secondly the back month being Sept06.
This is the history of the price for the April06 (front) and June06 (back) over the last two days.
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Note from Juan: Fortitude goes on to show me charts like this one with different configurations.
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Juan replied:
No, there isn't anything in OptionsXpress that would allow me to view the progress of a combination trade. Is this combo trade a 2x2/1x1 combo? or just 1x1x1x1?
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Fortitude replied:
It is the 2x2/1x1. Whatever Combo I set up, when I right click on the Combo order I can get the real time chart for it. I just loaded one the option lines and I got the price for one option. So I then thought I wonder if I can get the graph for the Combo order and I can.
Interesting isn't it?
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Juan replied:
That would be great, if you could have the trade placed and executed as a whole trade. OptionsXPress allows only the entry of a Condor and then a Straddle, not the PCCRC as a unit.
If you can trade the whole thing as a unit, then you can easily exit the trade when you reach a goal. That is VERY attractive to me.
Let me know.
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Fortitude replied:
Yes I can enter and exit four legs all together. The Combo order will only take a maximum of four legs though. If you wish to change to a higher strike, this will be OK during the rollover, but when you come to sell, you will have to sell the four leg Combo and then the additional leg separately. After the rollover, you have to delete the old Combo and reload it to the new configuration.
Practice on the IB demo first. In fact you can do that before signing up to IB, but you will only be able to practice on four tickers CSCO DELL IBM and MSFT.
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Juan replied:
In that case, some of my ideas would not apply to you. Enter your trade 2x2/1x1 as a combo and exit it as a combo whenever you wish. If the stock jumps to a higher level, and you want to MOVE the trade, I would explore the idea of closing your current combo as a unit and then open a new one higher. Tell me, what would be the commissions for the combo? do you pay per contract?
I think I might open an account on IB, just to see what is like.
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Fortitude replied:
The cost is $1 per position buy or sell.
For one combination, it is $6 only to enter.
One rollover for one combination costs $4.
Exit the trade costs $6.
Fairly straight forward with the commissions. When I explain to those who have used other brokers, they can't believe it is that low.
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Juan replied:
So, in my case, I had a 20x20/10x10, my cost would be $60 in commissions, correct?
With OptionsXPress, I have paid $77.91.
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Fortitude replied:
That is correct.
Two times $17.91 = $35.82.
Plus you will have additional rollover costs as well.
One caution though. If you are assigned, you do not have three days to sort it out. You have to sort it out the next day. This is where some 'inexperienced' traders fall foul. Just bear that in mind.
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Juan's note:
There is a definite advantage in being able to enter the trade as a whole. By doing that, you can avoid agonyzing on what is the best moment to enter the second portion of the trade or whether to enter the whole positions as a Condor followed by a Straddle or as a long straddle followed as a short straddle. You simply enter the position as a unit, at the best available price. In addition, you can save just a little in commissions (IB vs. OX).
The modifications on the trade, once in place may be quite varied, but I suspect they can all be handled reasonably well by either broker. However, a complex trade with multiple uneven legs is always a problem, and IB seem to handle this very well.
10 comments:
Just add further to the discussion, there was part in my writings, which I felt needed tidying up, with reference to the Blog Juan kindly produced;
"Yes I can enter and exit four legs all together. The IB Combo order will only take a maximum of four legs though. If you wish to change to a higher strike, this will be OK during the rollover.
This would be the standard combo order during the rollover.
For instance:
+1 the previously sold Call.
+1 the previously sold Put.
-1 the new front month Call.
-1 the new front month Put.
In your examples where the front month Put expires worthless, you have done this process.
For instance:
+1 the previously sold Call.
+1 the previously sold Put.
-1 the new front month Call.
-1 (Half the back month Call).
+1 The back month at a higher strike.
So here there is five trades you want to at once and you can only put through 4 max in one go. Then you will have to decide how to do it. That is your choice.
When you come to sell, you will have to sell the four leg Combo and then the additional leg separately.
After the rollover, you have to delete the old Combo order and reload it to the new configuration and by doing so you can monitor the real time prices for the whole trade."
Thanks fortitude, I didn't know that IB can graph in realtime the price of a combo. I have been watching the combo price on an intraday basis in order to determine a good price to get in. This will greatly help.
On the commission, IB is now charging only $0.75 per contract.
Juan,
I have been using IB for the past 3 to 4 years. Everything is good about them except that you got to watch out for the following;
1) They will not inform you if you have been assigned. The system will automatically liquidate your other positions at random the next morning if there is insufficient fund in the account. I think you have only about 15 mins the next morning to sort it out. I have asked them for the exact amount of time I had to sort it out, and they were not able to give me a definite answer.
2) One day, I bought a PCCRC and wanted to buy another one on the same day. However, I mistakenly issued a sell order instead of a buy. It got executed immediately and my whole account was immediately frozen because I was tagged as a PDT 'pattern day trader' and I don't have more than $25K in my account.
A Pattern Day Trader (PDT) is defined as one who effects 4 or more day trades (same day purchase and sale of a given equity security or equity option) within a 5 day period. A PCCRC has 4 legs and is regarded as 4 different trades by IB.
I need to write to them to declare that I was not a PDT for them to remove the label. In addition, I would need to wait for a period of 5 days after the day the account was first frozen before I could trade again.
3) It is well known that they do not have good customer support.
4) IB platform is very fast and efficient. You may need a bit of practice before placing real orders as it is quite easy to make a mistake and get immediate execution of the order. They now have a paper trade account which works exactly like a real account in real time which you can use for practice.
Fortitude said:
So here there is five trades you want to at once and you can only put through 4 max in one go. Then you will have to decide how to do it. That is your choice.
When you come to sell, you will have to sell the four leg Combo and then the additional leg separately.
Juan said:
In OptionsXPress, the entry forms are more elegant, but you can only enter a limited number of configurations. If you have 5 legs of uneven numbers, you have to figure out a way to exit the legs of the trade as 2, 3 or 4 combinations with equal legs, or a 2 combination of uneven legs. In general this is a challenge, but one gets used to it.
HK said:
On the commission, IB is now charging only $0.75 per contract.
Juan said:
Just to be clear, the commission is even lower than stated by Fortitude? in my DNA case were I have 20-20-10-10, I have a total of 60 contracts, I have been charged $77.91 in commissions. Fortitude said that the commissions in IB would be $1/contract, of a total of $60. Now you are saying that I my commission in IB could be even lower 60x$0.75=$45? Now this is starting to ad up to significant money.
HK said:
1) They will not inform you if you have been assigned. The system will automatically liquidate your other positions at random the next morning if there is insufficient fund in the account. I think you have only about 15 mins the next morning to sort it out. I have asked them for the exact amount of time I had to sort it out, and they were not able to give me a definite answer.
Juan said:
You have the rest of the day with OX, but I have always done my liquidation at the opening. With OX you DO get an e-mail notification, which is important if you are not glued to the computer, and this is ultimately the goal, we do NOT want to stay tuned 100% of the time. Although I admit I do, because I have turned into a fanatic of options trading. BUT I do intent to travel and do other things that would keep me away from the computer. This should NOT be a problem, if you take some steps I have mentioned before:
-always rollover (or close) your short positions at least 1 week to expiration.
-Sometimes it is advantageous to be assigned, but they do that at random. If you are assigned, close the position immediately and sell the next month option or close the entire trade (if that is what applies). Obviously, 1 week to 10 days before expiration, take some time to review your positions and see which one needs action.
-The difference between front month and second month is what determines your gain on a rollover. When options are deep ITM or deep OTM, the prices of first and second month become very similar. Be sure to do the rollover with sufficient time to get some cash for the difference.
HK said: 2) One day, I bought a PCCRC and wanted to buy another one on the same day. However, I mistakenly issued a sell order instead of a buy. It got executed immediately and my whole account was immediately frozen because I was tagged as a PDT 'pattern day trader' and I don't have more than $25K in my account.
Juan said:
OX allows you plenty of redundance for you to review your trade before entering, so DO take the time to read your order carefully. Early on we may be nervous about placing the trade. Later, we become a little careless. Obviously, this kind of thing has happened to all of us at some point or another. I consider it important that OX has the order review screens before placing the trades. OX also has a virtual trading, so you can test your order before the real thing.
If they put you in a PDT status, you MUST call your broker and explain that this positions are NOT day trades, but rather intermediate term trades. They should see that and correct your status as you clarify your situation. This happens in part because the number of contracts is large in this positions. This is nothing that cannot be resolved.
HK said: 3) It is well known that they do not have good customer support.
Juan said:
Well it is probably a good idea to start with OX for those of you who are not too sure about options trading because OX is great on customer service, and they have a great CHAT facility in their web site. I use it all the time, since I hate the phone.
HK said: 4) IB platform is very fast and efficient. You may need a bit of practice before placing real orders as it is quite easy to make a mistake and get immediate execution of the order. They now have a paper trade account which works exactly like a real account in real time which you can use for practice.
Juan said: For what I can tell it is not very user friendly. OX is more elegant, intuitive and all around idiot proof. Consider that before opening a new account.
To all,
RE: "When you come to sell, you will have to sell the four leg Combo and then the additional leg separately."
Can I just qualify this statement too.
You can configure the four legs the way you wish. You could do a 3 leg combo + 2 leg combo or a 4 leg combo + 1 option to exit the five leg trade.
Obviously you would not sell a position and leave yourself with a front month that you have sold, without the protection of the bought back month.... **Smiles**
HK,
RE: "One day, I bought a PCCRC and wanted to buy another one on the same day. However, I mistakenly issued a sell order instead of a buy. It got executed immediately and my whole account was immediately frozen because I was tagged as a PDT 'pattern day trader' and I don't have more than $25K in my account."
HK and other readers. This is something that I am aware that I could do too.
However, I have developed an approach to trading these. I make it a habit/rule to right click on the Combo order line and 'Order a ticket'. I then make sure I have set a limit price and the click accept. By doing this I can ensure that I can check it on the screen, before transmitting it.
HK by mistake I too set up a sell order, but my saving was that after I had sent the order off, by clicking 'Transmit'. I could not sell at the limit price that I set. Setting the limit price was my saving grace. It is the only time I did it.
If you practice on the IB demo you become more accustomed to it. Try that first.
I was unaware of the $0.75 per trade. I reckon that will add up to over a $100 saving using IB compared to OX.
Juan, BTW there is a free phone number that you can use too.
HK,
RE: They will not inform you if you have been assigned. The system will automatically liquidate your other positions at random the next morning if there is insufficient fund in the account. I think you have only about 15 mins the next morning to sort it out. I have asked them for the exact amount of time I had to sort it out, and they were not able to give me a definite answer."
So far I have not been assigned. However, I am now putting more positions on, so it is likely to occur at some point.
There is a procedure that you can do in the account management folder which allows you to prioritise and co-ordinate an ordered liquidation of the positions that ares being held in the account. Otherwise, what HK has warned about IB when they "automatically liquidate your other positions at random the next morning", will be true, if you have not enacted the prioritisation within the account management section of the IB account.
I do not know much about this, so perhaps HK knows a little bit more than I do on this component of IB. Any advice from HK or other IB users much appreciated. Thanks.
After I had written those lat comments on this Blogger, I had a look in the IB Account Management but I could not find what I was looking for. So I went to the IB Web trader instead and found a page where it showed my current positions in a table and in the last column on that table, the header reads 'Liquidate Last'. I e-mailed HK and put it to him that, "I assume that you can instruct IB to liquidate last if you want to. That is all I have found so far."
HK replied;
"Correct, you can right click on the 'liquidate last' column on the desired line. This will mark the particular leg so that it will only be liquidated when there are no more unmarked legs to liquidate. This may be of some help but not much if you have many positions in different stocks as it only allows 2 types of classification i.e. 'liquidate last' and 'not liquidate last' . The system will first randomly liquidate those in the unmarked list and if there is still not enough capital it will then randomly choose from the 'liqudate last' list.
The above is my interpretation of the liquidate last function. I can't find anymore information on the IB website from what you have found."
Thanks HK for the additional information. So IB users have to routinely keep an eye on their accounts, in case of early assignment. **Smiles**
Juan,
Interesting volatility crush on the DNA trade, in the last two days.
I still think you have the right call on this though.
Having said I had a fail safe system, I nearly got caught out myself... **Smiles**
For the DNA trade, I loaded two separate Combo rollovers, firstly for the back month options and secondly for the front month options.
For the back month options rollover, you need to sell the position you have and buy a new position. This will produce a positive figure on the screen.
For the front month options rollover, you need to buy the position you have and sell a new position. This will produce a negative figure on the screen.
It was when I got a positive figure on the screen for the front month rollover, I eventually realised my mistake... **Smiles**
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