What is the issue: bad order execution or poor choice of trading vehicle?

F

FredericD

Hi all, new here. I just experienced spread shock and I was hoping that someone more experienced than I could be so kind as to offer a couple of pointers.

I just opened an account with OptionsHouse in addition to my TD account. I don't have a Forex account. Last week I thought I'd place a bearish bet on EURUSD so I bought Mar15 28 EUO calls, a bearish x2 ETF I picked because of its good liquidity.

The part that didn't work fine is that I received two massive haircuts going in and out. The spread on today's EUO call sale was .10 on a .40 option (mark .40, bid .35, ask .45). Got filled at .35 despite what looked like decent market depth.

First I thought maybe the minimum bid/ask increment was .05 and was artificially widening the spread, so I checked another position I opened last week (Mar15 7.5 UCO puts) and the spread on those is similarly large (mark 1.10, bid .95, ask 1.25). I went and checked those same spreads on TD and they are similar, even a little bigger on one of the options.

As it stands the spreads gobbled up a good chunk of the position's gain. I can think of two things that went wrong: (a) my strategy of using ETF options to bet on the euro and crude oil was ill-conceived, or (b) OptionsHouse is not the right broker for these kinds of trades (what's the point of a low commission if you get killed on the spreads).

Would have I been better off doing the same strategy with a broker like IB, or was it a bad idea regardless of which broker I might have used? If your recommendation is to trade via Forex, could you kindly offer advice on a broker too?

Any advice would be very much appreciated. Thank you in advance,

Frederic
 
Do you have the Trademonster platform, yet? I hear its good.

I was a happy customer of OH. Pricing was excellent. Platform was simple, effective and very accessible. The risk manager warned me of some very dangerous situations during the early days. There was a factor of not seeing the orderbook and feeling that I was shopping for spreads forever. I believe it was more psychological for me. I'm still shopping on IB. The order book just tells me if the fill is probable.

For commission analysis, you need make a spreadsheet and compare the 2 brokers side by side based on the size that you do for stocks, single options, and spreads. Consult it when you structure trades. This also becomes handy when you have multiple accounts and need to select the correct venue.

Both are excellent brokers, but with different value propositions. Demo the account you don't have. You have to find your match.
 
OP if i understood ur post properly, try limit orders rather than market orders, u should get a fill before reaching the bid or ask, sometimes better than midpoint even, although if the options are not liquid it's less likely.
But yes the vehicle is probably not the best one, short eurusd futures or spot market or the main etfs is probably better
 
Limit orders do alleviate the issue, but they also leave you hanging in the wind if the market gets away.

I guess my main question is, can spreads in the ~30% range be considered normal for this kind of options?
 
Yes, the spread looks standard for option chains not particulary active. I definetely see similar spreads in the stocks i'm looking at. You can check a few stocks on your platform.
 
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