Bullets

[nitro]

I was just wondering if anybody had tried this in a retail account. I am not about to try it until I have more experience in real life option trading and made sure a retail broker will execute it.

As I stated above, I have an IB account, and I have put on a conversion by hand through them.

I appreciate your caution, and commend it.

nitro

 

[dgabriel]

For those traders who employ them. Do you always carry the option position with an end of day nuetral stance with the 3 elements of the bullet? Do you continually hold the options as you manage the equity position? When do you close out the position completely? Going into expiration? And do you always use bullets with stocks that you trade on an ongoing basis?

 

[rtharp]

Originally posted by dgabriel
For those traders who employ them. Do you always carry the option position with an end of day nuetral stance with the 3 elements of the bullet? Do you continually hold the options as you manage the equity position? When do you close out the position completely? Going into expiration? And do you always use bullets with stocks that you trade on an ongoing basis?

Bullets are done completely electronically and automatically expire at the end of the day without me doing anything. I don't see the bullets in my account.



It is possible to hold a bullet short overnight though if I want to.

If I trade the same stock over and over again I 'll do a conversion. As it is a lot cheaper (problem is it takes up capital which is charged a haircut)

Robert

 

[rtharp]

Originally posted by KnowFear


Don,

Is the Bright Bullet software truly an electronic transaction or more of a messaging system to inform someone at the firm to make the transaction on the traders behalf?

It is fully electronic

I hit an icon on my desktop

I window for my bullet software comes up

I type in my account #

I than type in my password

Once I've been recognized I can do whatever I want

Usually I'll type in 5000 IBM
and it goes working
..
about half a second later filled with a message brought up
bought 5000 IBM (which is 5000 bullets for IBM)

I can enter as many as I want

and just need to hit the F key on the software to see all of my bullet positions.

Robert Tharp

I imagine Bright is the same thing

 

[rtharp]

Originally posted by trade555
I haven't traded retail for many years and am not up to date on the new rules and regulations. But if someone reading these posts would ask there brokers about doing this and found out it's illegal at least they asked. The only dumb question is not asking any at all.

I was just stating the new rules. Not trying to sound like a smart*ss or anything. Sorry if it came out that way.

Robert

 

[rtharp]

Originally posted by nitro


Yes!

_BUT_, here is the minus, and why you want to do this from a prop firm. First, you have to understand that the margin requirements for having a conversion on at a retail firm are calculated "the retail" way. You see, since you are legging into a "complex" option position, their systems do not know that the position is "riskless." Therefore, you margin requirements, even for a conversion that allows you to short 100 shares of stock, will be several thousand dollars, EVEN THOUGH THE POSITION CAN"T LOOSE OR WIN MONEY AFTER IT IS PUT ON (other than whatever loss you "locked in" because of the bid/ask spread on the options, and stock.)

At a prop firm, they understand that, and your "buying" power isn't affected whatsoever! Not only that, they are done as one position, making them much cheaper and faster.

HOWEVER, IF you have a properly funded account, and you are able to put these things on CAREFULLY, and you start out by doing a SMALL conversion, and you want to be able to SHORT a stock at WILL, then go for it.



nitro

Well said The professional firms recognize this is a completely neutral /risk free position. You are only charged margin at a professional rate(very low) and the short will usually cancel out the majority of the long part of the margin. This isn't recognized at retail firms.


Robert Tharp

 

[Vinny1]

RTharp,say one person at your firm sells short the regular way on an uptick 1000 shares of ABC stock,and someone else goes long 300 shares of the same stock;can the one who is long sell his 300 shares on a downtick or must he sell it on an uptick since the firm is net short 700 shares? And are these 2 trading accounts considered separate accounts unlike proprietary accounts where everyone is basically trading one(the firm's)acount?

 

[ArchAngel]

nitro and rtharp -

RE: conversions at retail brokers:

It depends on the broker but for instance Mr. Stock and a few others margining systems DO know that the combo position is essentially riskless.

But they then have to follow the SEC guidelines for maintenance margin on such positions which is basically 10% of the exercise price of the conversion.

 

[AAAintheBeltway]

Ok, here's a dumb question from a non-prop trader: why wouldn't you hold a bullet or a conversion overnight and reuse it the next day? Is it just a matter of the margin or haircut charges? Also, how do the firms do the transaction? Do they actually go out and buy the put on the market or do they write it internally? If you buy a 1500 share bullet, is your buying power reduced by the cost of 1500 shares plus the bullet cost or what?

 

[Don Bright]

Originally posted by AAAintheBeltway
Ok, here's a dumb question from a non-prop trader: why wouldn't you hold a bullet or a conversion overnight and reuse it the next day? Is it just a matter of the margin or haircut charges? Also, how do the firms do the transaction? Do they actually go out and buy the put on the market or do they write it internally? If you buy a 1500 share bullet, is your buying power reduced by the cost of 1500 shares plus the bullet cost or what?

A. Bullets are a 1 day only event.
B. Conversions are kept until expiration.