Ideal Options Platform and Feedback for Basic Call Strategy

T

TraderZz

Hi guys,

Long time no post. I currently use Interactive Brokers for long term investing (and hopefully a solution to what I'm looking for can be found there, but if not, no big deal). My hold time on this specific strategy is one year, although I'll sometimes exit early due to technical, and I do not have any stops on the strategy (but sometimes do double down as it goes against me, never using more than 1x margin). I'm looking to introduce some additional return into my long term trading/investing through using calls instead of holding the underlying. I really am not interested in any other options strategy and am looking to keep this as basic as possible.

Two major questions.

1. I'm looking for a platform where I can enter my target for a stock, in how many days I anticipate the stock to reach that target, and the platform will tell me which strike and which month to buy to maximize risk to reward using the Greeks on it as well as bid/ask or last trade. So, it would have to model the impact of the Greeks assuming I held it for that number of days.

2. Any ideas on how to properly adjust my assumptions on my fills to account for options liquidity? My long term investing strat selects high value stocks, some with low liquidity (50,000-200,000 trades a day) although sometimes I buy stocks that trade multiple million shares a day. So, I'm not sure how viable this is as my experience with low liquidity options has shown me I often need to get 3/4 of the way to the ask to get filled. I know the midpoint is much more likely on stocks that trade 1 MM + a day.

I'm thinking of allocating a small portion of my trading account to experimenting with this and seeing how the results will compare with the same strategy holding the underlying. Any advice from others that trade long term and utilize a simple options strategy for additional alpha would be appreciated. I do not have the time unfortunately to learn more sophisticated variations of this strategy, so I'm also open to opinions if anyone believes this is a bunk idea and shouldn't be done in the first place. As in, if I'm oversimplifying this and my ignorance is likely to kill me, I would rather stick to what I'm currently doing than learn options in any greater degree than I already know.

Thank you for your time. As I remember, ET is often short of patience, so I appreciate any comment which doesn't rip me apart personally ;0.
 
Thanks. Going through the plugins they have available now. I should have also mentioned that my strategy relies on a few percentage of stocks <20% for 90%+ of the profits.
 
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Why bother trading options with low liquidity? Because if they have no volume, even if you get a fill... you have a risk when getting out. When there are hardly any trades, the MM will remember the trades and will likely squeeze you a bit when you want to get out, since he will have a fairly good idea where you could trade.

In options with low liquidity, midpoints have absolutely no meaning at all. So if you want to go there, you should value the options yourself. Use your own IV's and skew etc. That way you have at least a better idea of where it's possible to get a fill.
 
It's not my objective to trade low volume options. It just so happens that my strategy does better on lower capitalized issues, which tend to have lower volume.

Do you recommend any tool that will estimate the fill for me with any reasonable degree of accuracy?

Also, I checked with Hoadley.net and according to the programmer, the tools will not accomplish what I'm setting up to do.

Any more ideas?
 
JackRab said:
Why bother trading options with low liquidity? Because if they have no volume, even if you get a fill... you have a risk when getting out. When there are hardly any trades, the MM will remember the trades and will likely squeeze you a bit when you want to get out, since he will have a fairly good idea where you could trade.

In options with low liquidity, midpoints have absolutely no meaning at all. So if you want to go there, you should value the options yourself. Use your own IV's and skew etc. That way you have at least a better idea of where it's possible to get a fill.
More...

Jack,

What do you think about tracking the bid/ask spread as a percentage of volatility? Would it give the trader/speculator an idea of how the dominant mm's are pricing the spread?

Take for example OG, gold futures. No mmaker list is published and there seems only a handful of mmakers in the product.
 
@xandman, what do you mean by tracking?

The wider the spread, the less info you have to assume the 'right' theoretical price. If it's very low in liquidity, even if you get traded... you might have to pay a lot higher price if you want more. So... the 'right' price is not that easy to determine anyway.

If the spread is 0.50 @ 2.50 and you get hit on a 2.00 bid, the next offer, immediately after the trade might be @ 1.70... or the next bid might be 2.20... it all depends on who is watching and what they want.

Even putting in small bids or offers to check where the price might be, doesn't necessarily provide a decent price. 1 lot or 100 is a big difference in low liq options.

Also, with a wide enough bid/ask-spread the market maker doesn't even have to update their price when the underlying moves. You could get the same spread when the stock is at 20 or 22... depending on the delta etc.

IMO, the best way to go at it is by doing some research on historical vols and estimating what the 'correct' IV would be and price of that. Basically use your own pricing/modelling. Isn't really that hard to do. I just use excel with manual inputs, but even realtime is easy to implement.

@TraderZz, I haven't used Hoadley, but had a quick look a while ago. I find their tools not that amazing to be honest. I might have a look again....
 
Jack: Get what you're saying on options. Same as with the underlying, although I've found as long as I'm trading under the size on the bid and ask, I can almost always get filled immediately going 75% to the ask with a limit.

Any thoughts again though on the platform? Google has yielded me no results. Might just do a cold call of all options brokers and see if the reps have answers.
 
just21 said:
www.hoadley.net/options
More...

I have built a really involved spreadsheet to take IB options data and do all sorts of crafty, wonderful, trade-improving things. Should I "finish" it [[HA!]], I would commercialize it immediately, and charge, roughly, a million dollars for an annual license.

The problem with this worthy, worthy goal is that Hoadley's creation *smokes* mine, and he charges..... ??~AUD$200??

Marvelous beast.
 
JackRab said:
Why bother trading options with low liquidity? Because if they have no volume, even if you get a fill... you have a risk when getting out. When there are hardly any trades, the MM will remember the trades and will likely squeeze you a bit when you want to get out, since he will have a fairly good idea where you could trade.

In options with low liquidity, midpoints have absolutely no meaning at all. So if you want to go there, you should value the options yourself. Use your own IV's and skew etc. That way you have at least a better idea of where it's possible to get a fill.
More...
Very true.:(

I traded low liquidity options quite often and a round trip was quite costly through bid/ask spreads. If I held the options, either long or short and wanted to sell to close or buy to close I usually had to offer close to bid for selling and close to ask for buying or there would be no takers.

I should probably give up trading low liquidity options on low liquidity underlying.:banghead:
 
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