Comparing US and Dutch FTA index options

MajorUrsa

MajorUrsa

Hi, I'm currently comparing index options in the US and in my own Dutch FTA exchange.

Some background: for a few years now I traded the dutch (Amsterdam) FTA.EOE index options. I first did this through a Dutch broker but it became to costly and clunky and I switched to IB. Because I'm used to my home market I decided to go on trading them for a while and maybe switch to US options later, a possibility that wasn't available earlier.

So, also due to other (technical) reasons I'm now contemplating a switch. I started looking for the option chains and compared them to what I already have.

Two things struck me and I want to know if I'm correct.
1) margin requirements are much higher in the US. Selling an SPX ATM feb07 put demands about 18.000 margin (as indicated by 'check margin' in TWS). An ATM feb07 put on the EOE index needs about 3500 in margin.
Of course the SPX has 3 times the worth of the EOE (1430 against 505) but has a lower IV (10% against 12%). Around 8.000 would be comparable.

2) The spread. The same ATM puts, the SPX one trades 13.40 (51) against 14.50 (18), a spread of 1,10 or 8%. The EOE put trades for 7.15 to 7.30, spread of 0,15 or 2%.

Am I missing something here, or maybe looking at the wrong ladders? There are many different structures available so that is very well possible.
Are there better (index) options to trade on the US exchanges, or should I keep trading my own turf?

I can see liquidity in the US is better but not with the expected result of closing b/a spreads. Also, the higher margin requirements would make it hard to get a reasonable ROI trading (short) options.

Are my numbers correct, and if so, how do we explain this remarkable difference? Any light on this issue would be welcome.

Ursa..
 
Quote from just21:

Have you looked at the DAX and ESTX50 from Eurex?

And if you cannot sleep then the K200 from korea?
More...
Those are good suggestions, specially the DAX. I once intended to do DAX options but forgot about them when was steering to IB.

Do you know about margin requirement for DAX and their spreads? I don't have the DAX datafeed subcribed currently, mostly because I find it confusing which one to take (if you could tell). Maybe I'll switch it on tomorrow to take a peek.

Thanks for the idea anyway,

Ursa..
 
Quote from MajorUrsa:

Hi, I'm currently comparing index options in the US and in my own Dutch FTA exchange.

Some background: for a few years now I traded the dutch (Amsterdam) FTA.EOE index options. I first did this through a Dutch broker but it became to costly and clunky and I switched to IB. Because I'm used to my home market I decided to go on trading them for a while and maybe switch to US options later, a possibility that wasn't available earlier.

So, also due to other (technical) reasons I'm now contemplating a switch. I started looking for the option chains and compared them to what I already have.

Two things struck me and I want to know if I'm correct.
1) margin requirements are much higher in the US. Selling an SPX ATM feb07 put demands about 18.000 margin (as indicated by 'check margin' in TWS). An ATM feb07 put on the EOE index needs about 3500 in margin.
Of course the SPX has 3 times the worth of the EOE (1430 against 505) but has a lower IV (10% against 12%). Around 8.000 would be comparable.

2) The spread. The same ATM puts, the SPX one trades 13.40 (51) against 14.50 (18), a spread of 1,10 or 8%. The EOE put trades for 7.15 to 7.30, spread of 0,15 or 2%.

Am I missing something here, or maybe looking at the wrong ladders? There are many different structures available so that is very well possible.
Are there better (index) options to trade on the US exchanges, or should I keep trading my own turf?

I can see liquidity in the US is better but not with the expected result of closing b/a spreads. Also, the higher margin requirements would make it hard to get a reasonable ROI trading (short) options.

Are my numbers correct, and if so, how do we explain this remarkable difference? Any light on this issue would be welcome.

Ursa..
More...

The reason for different margins is that US index options use reg T, which is inferior to the risk-based margining used in options on futures, aka SPAN margining, (e.g. options on e-mini S&P500 futures) and elsewhere in the world. This is about to change though as there are plans to introduce risk-based margining to US index/equity options.

You should look into options on US index futures for similar margins. They are less liquid than index options though.
 
Quote from Grant:
Ursa,

Here's some daily volume figures for DAX and Stoxx.

Will give you an idea for liquidity.

Grant.
More...
Thank you, Grant. Very helpfull.
I have now data from IB for the DAX futures and options. Still can't see margins because I can't trade them yet; needs a separate trading approval, another 24 hours <sigh>.

I see price structuring is rather different. ATM FEB options being around 100 euros, instead of the 10 or so I'm used to. Of course the DAX is about 10 times more 'valuable' as the AEX/EOE.
On the IB site http://www.interactivebrokers.co.uk...te=IB&conid=41517392&detlev=2&sess=1169041926 (don't know if that works) I see the options with 'factor 5' while AEX options have 100 as factor. I don't know the IV for the DAX but shouldn't 5 contracts for a 10 times dearer index be only half as expensive as 100 contracts for the cheaper one? I'm obviously missing something here.

Does anyone know how many contracts a DAX options represents?

Ursa..
 
Quote from MTE:

The reason for different margins is that US index options use reg T, which is inferior to the risk-based margining used in options on futures, aka SPAN margining, (e.g. options on e-mini S&P500 futures) and elsewhere in the world. This is about to change though as there are plans to introduce risk-based margining to US index/equity options.

You should look into options on US index futures for similar margins. They are less liquid than index options though.
More...
Ah yes, I remember reading about that; never could place it in a practical context. Now I do :). Thanks MTE, that is very helpfull, I'll look into that, when the markets open.

Ursa..
 
Quote from MajorUrsa:
I don't know the IV for the DAX but shouldn't 5 contracts for a 10 times dearer index be only half as expensive as 100 contracts for the cheaper one? I'm obviously missing something here.
More...

Disregard that please, I wasn't thinking.

Prices are in line: Dax is worth around 6700, AEX is around 500 so DAX options should trade for about 13 times as much as the AEX ones. Which they do.

Spread for atm options are 154.3/156.8 so 2.5 or 1.3%! Very Good.

This is getting interesting,

Ursa..
 
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