SPX Credit Spread Trader

[yip1997]

Quote from RCMLLC:

I believe he meant 800 as in strike price and not number of contracts.

Yes, that is what i meant. I opened these two positions in different time in different accounts because of the margin consideration at that time. On paper, it means i will have zero net effect on my p&L, but on settlement, my brokers will charge me settlement fee for these positions. It means a net loss of 2 x settlement fee.

However, if i close it by setting a limit order at the mid in these two accounts, i think they will get filled unless some market makers jump in to fill your order (I believe my order is the first in the queue, so my next question is : can a floor trader jump in and take the priority over my order?) By closing it before settlement, my net loss = 2 * commission charge that is a lot smaller than my settlement charge.

 

[yip1997]

Quote from dagnyt:

As a market maker, and a registered broker-dealer, it was absolutley NOT ALLOWED.

The rules may allow for a retail customer to makes these trades, but I doubt it.

Don't do it unless you are 100% certain you are not violating the law.

Mark

Mark,

I understand it is illegal for a broker dealer rep. It is called "painting the tape".

I don't know if it is allowed for your retail accounts. Since you really don't know if these two actually get filled with each other when you place the order.

If I don't get a firm answer, i will let them settle and pay for the settlement commission. It is not a big deal.

 

[dagnyt]

Quote from TrendSailor:

Then those I want to keep long I buy back in a different account to reset my basis...

TS

Buying in one account and selling in another has NOTHING to do with the question. He is asking if he can trade with himself.

Mark

 

[No Option]

Yip:

I called Thinkorswim for clarification.

It is not true level 2 but their "version" of it as others have mentioned.

They hope to have Level 2 in the future.

 

[yip1997]

Quote from TrendSailor:


Frankly, if you go long term capital gain on a buyback from a separate account it won't show up on 1099's till later years. I doubt IRS has the Cray's to run multi-year checks across multiple accounts and tax filing years to check that ever person in the country trading stocks is copacetic for the level of "chump change" tax obligations they could collect.

TS

TS,

There has nothing to do with tax. I think Mark understands my point clearly as he was a market maker. I am just trying to save the settlement commission if rut goes over 800, and release the margin in the same time. During the expiration week, I usually try to free up my margin for potential opportunities for next month.

 

[yip1997]

Quote from No Option:

Yip:

I called Thinkorswim for clarification.

It is not true level 2 but their "version" of it as others have mentioned.

They hope to have Level 2 in the future.

Thanks a lot for clarification.

 

[yip1997]

Mark,

I have a strategy and don't know if it works for retail. As a market maker, you probably have some insights in this strategy.

Usually the bid and ask spread for illiquid options is very wide. Assuming the market is efficient and the expectancy for buying or selling at the mid = 0.

If we can buy close to the bid, and sell close to the ask, we will generate a positive expectancy in the long run.

Tactically, I bid at bid+min increment, and ask at ask-min increment. In practice, I trade like a competitive remote market maker for illiquid options.

In a financial market, there is a premium for providing liquidity. Trading this way is like making the premium for holding illiquid assets.

Any comments?

 

[dagnyt]

Quote from yip1997:

Mark,

I have a strategy and don't know if it works for retail...

Tactically, I bid at bid+min increment, and ask at ask-min increment. In practice, I trade like a competitive remote market maker for illiquid options.

Any comments?

Yip,

If the options you are trading are very active, then you have a real chance to trade at your prices - before much time lapses.

But, you are referring to illiquid options with wide markets. Thus, the problem: it'a very unlikely you will get a fill until the underlying asset has changed price by a sufficient amount that the MMs will want to trade one of your orders. That will leave you legged, with little chance of completeing the spread at a favorable price (unless the underlying reverses direction by a significant amount).

I prefer to enter my spread order, knowing it will not get filled unless the underlying moves. But at least, I'll have my complete spread at a price that was acceptable when I entered the order.

Obviously, it's more efficient to trade more liquid options (but, I don't).

Mark

 

[TrendSailor]

Quote from dagnyt:

Buying in one account and selling in another has NOTHING to do with the question. He is asking if he can trade with himself.

Mark

Hmmm, now that you put it that way I am looking t this a little deeper. Technically, even if trading through 2 separate accounts, if he bought opening positions both long and short on the same day on the same option underlying/strike/calendar I now think he could be considered by SEC ETF rules to be day trading on short positions. From the perspective of the broker's accounting journal I am wondering now if it is possible that the broker's auditing and rules compliance software sees the trades as the same client/trader (e.g. same EIN/SS) who is essentially opening a short and simultaneously closing it with an opening long in the other account at the same instant? I don't know if this is in fact what he did but clearly, from the context of each separate account this is not the case. But the broker's journaling/accounting software may aggregate it all up and resolve it to a single customer ID; and omg that would be a bummer if it did. If so, then from the perspective of the Broker's aggregate level reporting obligations to SEC the client could conceivably be subject to a day trading call and be held to: 15% of the aggregate contract value (current index level x $100) minus the amount by which the option is out-of-the-money, if any, subject to a minimum of option proceeds* plus 10% of the aggregate contract value .

This is not a fun position to be in. In fact I once got trapped in this with an open order I forgot about that resulted in me going in and out in the same day on a 200 contract SPX short position (at a loss). Nothing like getting a multi-million dollar day-trade call and not having the cash handy to wire in. The broker will let you off 1 of these non-pattern day trades every 90 days before they restrict the trading accounts to uptick rules etc. Anyway, I'd be very careful to make sure that this rule (Exchange Rule 12.10? ) could not be invoked at the subjective whim of the broker when using multiple accounts since it could wipe out even the best risk management and money management plans...

BTW my comment about tax mechanisms just adding on another tangential thought about the flexibility and benefits of multiple accounts. Do you not consider trading tax loss credits with oneself through multiple accounts trading? After all it's all an equivalent semantic of exchanging basis & credits? Money is money and net is net no matter what tax year in comes in on.

TS

 

[dagnyt]

Quote from TrendSailor:

... if he bought opening positions both long and short on the same day on the same option..
TS

Let's drop it.

You obviously missed the point (it was 2 closing transactions) of the question and are off-topic. And verbose to boot.

Mark