Where Should You
Trade Options?
As RETAIL OPTION TRADERS
things have gotten somewhat better thanks to competition between the BROKERAGE
FIRMS. As we know the COMMISSIONS charged for OPTIONS TRADING in 2006 are
substantially lower than what was charged just a few years ago - not to mention
all of the sexy research and analysis gadgets the BROKERAGE FIRMS are providing
along with their promotions for free trades etc. The content and bonuses are
plentiful and can be quite advantageous to the RETAIL OPTION TRADER but in no
way are these perks indicative of how a firm delivers TIMELY EXECUTIONS and GOOD
FILLS. Yes, comparing the COMMISSIONs, TRADING PLATFORMs and extras are a good
start in selecting a BROKERAGE FIRM to handle your OPTIONS TRADING but the
reliability and speed of their TRADE EXECUTIONs can only be determined when the
TRADING is done.
When staring out as an OPTION TRADER it might be a good idea to initially spread
your investment dollars out in between two or three different BROKERAGE FIRM
candidates until you have some real life trading experiences with each one to
help you determine if any of them will suit your OPTION TRADING PLAN while
putting a large emphasis on getting GOOD FILLS at FAVORABLE PRICES (usually in
the middle of the BID/ASK) If you are fortunate enough to realize some
advantages from one over the others you can easily shift your trading activities
to the one or few you desire. Chances are one firm by itself will not provide
everything you want under one roof but between two of them you might be able to
achieve more of what you need. The most important point here is that you base
these observations on real life trading situations and NOT what is read in a
brochure or on a web site.
In my own personal experience I was interested in trading the OEX WEEKLY OPTIONs
and needed to pull some of my trading dollars out of an active firm I was with
because they did not offer (and still don't) trading on OEX WEEKLY OPTIONS. The
new firm I switched to did not offer any of the conveniences my original firm
had when it came to BANKING SERVICES or debit cards etc but as far as TRADING
EXECUTIONS went they were actually better than the firm I was first with. So the
result of this situation is that I established an account with a firm that
provides the OEX WEEKLY's and because of their superior TRADING PLATFORM they
now handle 75% of my OPTION TRADING activity and only 25% of my funds remain
with the original firm. It's also nice to be on board with two different firms
just in case one of them has technical problems, I know I can still get trades
done with the other.
I can't stress enough how important it is to find out what is best for you and
your situation – don't just act on what you read or hear. Another good reason
why we need to test drive a BROKERAGE FIRM for OPTIONS TRADING is ORDER FLOW. In
most cases OPTION ORDERS are controlled through automation but the true test of
a BROKERAGE FIRMS ORDER FLOW and their policy on MANUAL REVIEWING OPTION ORDERs
and when an order might be kicked out for MANUAL REVIEW. This can take place due
to a number of instances such as MARGIN, CASH or POSITION COMPLIANCE - but
either way the efficiency in how the firm expedites this situation is crucial to
the OPTION TRADER. Imagine if a TRADER wanted to LEG into a VERTICAL DEBIT
SPREAD and after being FILLED on the LONG SIDE the SHORT SIDE SELL ORDER was
kicked out for MANUAL REVIEW. Now the trader is at the mercy of the firms MANUAL
REVIEW staff to approve the order and get it out – What would happen if the
person in charge of approving the SHORT OPTION SALE was overwhelmed with other
tasks or talking on the phone or maybe eating a hot dog or flirting with someone
– no matter what it might be, the traders order is still not out there until
this person lets it go. What would happen if the UNDERLYING INDEX/STOCK attached
to that OPTION moves against the TRADER? It can get away from the TRADER and the
cost of the DEBIT SPREAD can get out of control costing plenty more $$$$.
This situation can certainly happen in the real world of OPTIONS TRADING as it
happened to me with a FORMER firm where it took them 8 minutes to release my 2nd
LEG SELL ORDER (Yes I did say FORMER firm)
So when your order screen says "ACCEPTED" make sure you check it out – if you
don't see it FILLED and you don't see your PRICE represented on the BID/ASK you
can be sure that your order is in REVIEW and you are about to learn something
you wont learn about in the firms brochure or web site.
So keep in mind that its not just about cheap commissions or web content – We
can ask about a firm's policy on MANUAL REVIEW of OPTION TRADES but we will
never know the real deal until we try them for ourselves.
Happy Trading
Frank Kneipher
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