Etrade options marking methodology

[stepandfetchit]

IMO, midpoint over all is the most accurate and fair place to mark options. You will get nasty marks with options with wide spreads. I have a few clients that trade the VIX ETFs and many marks go out $.20-$4.00 that are trading at $0.35. Keep in mind from the viewpoint of the clearing firm or broker, that if your account were to go below zero, it is likely they would have to establish a loss following a pre-set procedure. That procedure is often MOO, MOC or a market order. Illiquid options with wide spreads have more risk for all.

Wedbush in the past used the bid for longs and the offer for shorts. We fought hard to get mid point. Wedbush just changed to mid point in September. Overall, I'm very happy with that, Those trading options with wide spreads should understand the risks to liquidation and marks.

Bob

I agree with Bob! MID is best. While the algo referenced for sometime using LAST sounds logical on the surface, it is NOT better than MID for representing the price for making decisions!

 

[Gambit]

IMO, midpoint over all is the most accurate and fair place to mark options. You will get nasty marks with options with wide spreads. I have a few clients that trade the VIX ETFs and many marks go out $.20-$4.00 that are trading at $0.35. Keep in mind from the viewpoint of the clearing firm or broker, that if your account were to go below zero, it is likely they would have to establish a loss following a pre-set procedure. That procedure is often MOO, MOC or a market order. Illiquid options with wide spreads have more risk for all.

Wedbush in the past used the bid for longs and the offer for shorts. We fought hard to get mid point. Wedbush just changed to mid point in September. Overall, I'm very happy with that, Those trading options with wide spreads should understand the risks to liquidation and marks.

Bob

Bob, does Wedbush have an autoliquidation protocol like IB?

 

[newwurldmn]

Bwock,bock,bock,bock,bock,bock..

what does this mean?

 

[newwurldmn]

I agree with Bob! MID is best. While the algo referenced for sometime using LAST sounds logical on the surface, it is NOT better than MID for representing the price for making decisions!

Neither mid nor last is good for making decisions.

 

[ajacobson]

Bid on a long - Ask on a short - same as OCC risk and the marking almost all institutions use.

 

[Robert Morse]

Bob, does Wedbush have an autoliquidation protocol like IB?

NO, not without a margin or risk call that was ignored. It is never automated.

 

[DeltaRisk]

The quotes aren't indicative of the actual market. They exist because option published quotes are often relatively thin.

Are you trading retail...?

I'm asking because your posts are too insightful for a retail trader.

 

[newwurldmn]

Are you trading retail...?

I'm asking because your posts are too insightful for a retail trader.

Strictly PA now. Was institutional as an electronic market maker and then a prop trader for a major bank.

 

[lawrence-lugar]

etrade users:

Are others who use Etrade experiencing more volatility in their

I thought all Elite traders used InteractiveBrokers,

I was under the impression Etrade was for amateur, retail, dumb piker accounts destined for doom.

 

[iprome]

Agreed that midpoint is more accurate. This is evident by the fact that CBOE uses the bid-ask midpoint of SPX strikes to calculate VIX:

http://www.cboe.com/micro/vix/vixwhite.pdf