Of topic but i was just reading through this thread, and noticed you have plenty of post. Would it seem smart to you if someone used TorS but traded through IB to save on cost?
Is there a demo account to learn how to write options?
- Thread starter sean rogers
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Of topic but i was just reading through this thread, and noticed you have plenty of post. Would it seem smart to you if someone used TorS but traded through IB to save on cost?
Thank you all for your posts, I appreciate your replies. As a follow up, I spoke with someone at OptionsXpress and they told me that options writing is the same thing as short selling. Is that true? If it is, it seemed odd because when I tried it, instead of getting a positive amount of money (like I would expect with receiving a premium) I actually had negative money even after the brokerage commission. I don't think I trust them anymore.
When you short options, you get a credit into your account which is a negative number until a major event happens and then you get a margin call from your broker and they charge commissions on both sides of your trade plus high interest on your margin until you deposit more money.
The best platform for backtesting your option strategy in a simple way is to use the TOS platform and click on the top right for "ONDEMAND" platform. This gives you access to their historical database and you can pick a point in time and see streaming bid/ask prices on options and paper trade them. They go into your paper account and you can fast forward or simply watch how they change over time tick by tick. The P&L will track your progress and you can see how profitable it would have been with real prices. When you start adding many positions, the platform starts to be unpredictable and wont let you put on more trades so keep it simple and it works fine. This is provided for no charge so great way to test strategies where you think you can trade in and out in a few hours - the execution is not as a bad as a real market so just be cautious in assuming you can get fills in a fast market - cause you wont!...
You would want to have a few brokers so IB is a good choice for options cause they have smarter routing of options and will move your orders if a better price pops up somewhere. TD that just leaves your order and you have to wait to get picked off by an algo.
Both these brokers share your orders with a market maker who pays them $1.75/ contract commission for the right to trade against your order. Makes you wonder why a firm that only pays .10 cents/contract to trade in the market would be willing to pay so much to see and possibly trade your order... follow the money...
What is your source of this information? Can you elaborate? -- I'm as curious over how you obtained this info as I am the info itself.
If you read the contract/agreement "fine print" provided by the broker, they are required to seek our approval to their relationship with provider and that includes how much they are paying - TD is paying $1.75/contract per the agreement we sign to become a customer. That was two years ago when I reviewed the agreements - has the price or relationship changed?
Thank you for the in-depth reply, but I'm afraid I gotta hear it in simple language. Is shorting options the same thing as writing and selling an option? If so, when do I collect the premium?
Thanks again
Thanks again
I don't know TOS. I only trade with IB, and use InvestorRT for strategy development.
I figure, the best way to learn, is through, an example. I'll do an example with CHK as it's a stock I watch daily. Say you want 1000 shares of CHK, currently at $7.13, so instead of $7130 investment plus commissions you write puts. Puts give you the RIGHT to buy at strike price. I go a few months out, so let's go with April 2017's, if the $7 puts they are .86, your price would effectively be $7-.86=$6.14 should the stock be at $7 in April they're worthless. $86 per contract gives you $86*10 or $860 in premium today. Your brokerage will require margin set aside for that stock in addition to that premium collected. If CHK falls to $7 tomorrow, those puts you wrote at .86 will be north of .90 so on paper down .04...stock goes to $7.30, they'll go the other way down to .80(use CBOE.com option calculator if you want precise). Writing a put makes you a synthetic long. I use OptionsXpress as I swing trade so no idea why you got that answer.
Like the other guys said, options writing can make you synthetically long or short the instrument. Just read a book or two, scribble down some ideas, find a free options graphing program/calculator and hammer away on the concepts until you are comfortable with how it all works. Plan for the unexpected and don't get carried away with "nickle and diming" stuff as that will eventually become a major temptation.
Question: How far back in time are they providing their historical data? And can you do it for any listed underlying and options?
Thanks.