I see that Scotia Bank has absorbed itrade and is up and running, not sure how long they have been. I am a BNS client for mortgage, credit and a couple of accounts including my US dollar account so I thought I might take a look at their trading platform and fees. Perhaps there is an advantage in having everything in one location...perhaps not.
I like Questrade as they are cheap, $4.95 trades (a penny per share with a cap of $9.95), the pro platform needs 25 trades to be "free" and is reasonably flexible and the active account minimum is $250 with no additional fees or tiered commissions.
So looking at the Scotia offering, I was surprised that it did not really compare as I though that it might.
A quick glance shows the tiered commissions. $6.99 per trade looked good but I would have to have 150 trades per quarter. Sounds big, at 50 per month it is substantial. Their is no mention of trade size that I saw but there were a few restrictions based on share pricing and minimum trade size, it was not terribly clear exactly what that entailed though.
Comparing my activity levels I may qualify for the $6.99 trades in some months but I transact 30 plus trades per month, not always 50. Due to my small startup account being less than $50,000 I would typically get nailed for the $19.99 trade commission (2 cents per share after 1000) as I would need to have between 30 and 150 trades per quarter AND $50,000 to qualify for tier two.
Options trades follow the same pricing structure plus $1.25 per contract compared to the $9.99 plus $1 at Questrade. My current volume and account size puts me in the $19.99 plus $1.75 per contract though...and I consider myself pretty active... the second tier is close but, again, no $50,000 or I would see $9.99 plus $1.25, a little pricier yet but not enough to make a real difference.
Now, the real kicker comes in with the platform. The pro level software IS THE SAME SOFTWARE as Questrade uses. I should not be surprised though as this is a common theme with onine trading.
Pricing is a little different though:
For 150 trades per quarter it is free (50 trades per month), 30-149 per quarter it is $99 or greater than $250,000 in assets. The base price is $200 otherwise.
This compares to Questrade's pricing for Pro at 20 trades per month or $30 per month.
I like Questrade's simple commission and platform pricing structure and the fact that it is just plain cheaper overall. I have not had an opportunity to try out Scotia's itrade for customer service as I will not open an account just to test run it...I considered it though but it just didn't make sense to through the money away to satisfy my curiosity.
So, the bare bones comparison for my monthly fees given my account size and activity now is:
Questrade: $4.95 stock and $9.95 options commissions, zero account fees, zero platform fees...zero any other fees except ECN, margin rates and other probably comparable fees. $300 or more due to commissions. Nice.
itrade: $19.99 stock and $19.99 options commissions, $99 platform fee, other fees seem the same. $700 or more due to commissions and platform fees.
So, I will continue to use the $400 advantage of Questrade.
I must mention the one advantage in favour of itrade... which I likely wouldn't use at all anyway... Virtual Trailing Stop Orders. They track the VTSO actively them selves and execute the market order on my behalf. Questrade only uses the orders that are available through the market they are trading in. This may mean that a true stop loss order is also available through itrade as well. This begs the question about execution of these trades though. They explicitly outline that they are not responsible for losses due to failure of software and whatnot. I know that a VTSO or stop loss placed with a market will be honoured and executed, what happens in the case of a volume load and platform problem where the itrade VTSO cannot get through...I am not as comfortable having an order another "step" away from the market.
Having said that I am trading US markets that do support the VTSO and stop loss and I am not using stops, generally, for my option orders so the whole issue may be a moot anyway.
For any interested I have links on this blog for Questrade and the Scotia stuff can be found by just entering "itrade" in the search browser, it will show up near the top of the search.
Jeff.
Questrade, My direct access discount broker.
Saturday, October 31, 2009
Friday, October 30, 2009
Options Strategy, the Strangle. (Iron Condor)
Here is the chart to show the typical strangle style trade using the S&P 500 index as an example. The numbers are just arbitrary and, while may actually work they are not based on anything other than convenience.
This could be applied to any stock that has a deep enough option chain. It involves selling a call option (1130 green)above the current level (1010 orange dashed) and buying protection to cover the short call above the short (1140 red). Then doing the same with the puts in the other direction.
The dashed orange line represents the level on the day of the trade...blue vertical line. The green box is the time window to be able to place orders for the options expiring on September 18th and 30th.
This could be applied to any stock that has a deep enough option chain. It involves selling a call option (1130 green)above the current level (1010 orange dashed) and buying protection to cover the short call above the short (1140 red). Then doing the same with the puts in the other direction.
The dashed orange line represents the level on the day of the trade...blue vertical line. The green box is the time window to be able to place orders for the options expiring on September 18th and 30th.
As long as the S&P 500 remains within the brackets (or not too close to one side at least) then the options expire and I keep the profits. The key is to allow the short options to expire as closing the trade involves buying them back, which drives down the profit.
Trades 2 and 3 are just at different levels which would move the whole trade (call and put strike levels) up and down according to the market move, approximately 25 points in either direction. This allows the price more leeway in those directions as well as providing trades that have very short expiry times...this serves to reduce the likelihood of a move being large enough to hit the protection and create quicker returns which allows the money to be put back into play sooner...that drives the annual rate of return up.
It is worth noting that the large moves earlier in the year could have produced some losing trades as the move was fast enough to tag the bracketing options before expiry. I didn't clock any losers in that period in my back testing though. That is a good win rate as that was 28 trades to date in 2009.
I am looking forward to seeing how this works out in 2010.
The trades in the backtesting were placed on August the 4th, 18th and 24th and netted $1066 in total at the end of September without really optimizing the target profits on the trades
BTW, I am not revealing any propriety methodology here as the Optioneer system provides a variety of information in order to monitor these trades and the software allows easy setups, order placing and risk monitoring.
Jeff.
Update, the good and the bad...or the bad and the good....
It's been a few days since I've blogged anything as I have been busy. Between a conference last week, ULC inspections this week and other personal stuff going on in the middle I just have not had time.
AS far as my trading is concerned there is no real movement to talk about. With the pullback in the market I expect to realize a few losses soon as one position expires in November and it likely will not move fast enough to recoup me much. A bunch of others are way down but have longer to go so there may be some promise there. I have a few that are in the green after spending some time in the red and one or two that the stock gapped down dragging the option price with it.
Having said that, if I had been in these stock positions instead of options I would be losing my shirt in most cases. The downside to the options is the expiry though. At least with the stocks I could choose to hold them if they looked like they were going to come back, some are not going to fast enough for me though.
Even though many are down it is a comforting feeling to know that, in the few cases that the option has hit zero...it cannot go any lower.
I should mention my overall strategy mistake.
I had decided that $120 is my loss allowance and that dictates the position size of the trade. I will take positions of a single contract that are higher than $1.20, as high as $2 but I will not take multiple contract positions that are any higher than the $1.20 or maybe $1.30. The issue is not that decision, the issue is that I still had a few positions that were far larger than this and I have let them go rather than placing a stop loss. So I have some $400 plus trades that I should have pared down at least or just stopped at worst.
Also, a few of these are from service advisories that I no longer subscribe to, even though I can chart and track them easy enough to determine where they are going (the cancelled services really only used some basic technical studies and a bunch of guesswork afterall) I had gotten lazy about them.
Perhaps I should have just cleaned house and brought everything in line. Hindsight is wonderful. At least I had a decent profit to also work with on this.
So my strategy is to hold out for the expected rally, if it does not materialize I will close some losing positions, let a few expire to save the commissions as they are not worth trading now, regroup and keep on slugging.
On the Optioneer/Strikepoint side I placed a trade yesterday that did not get filled...due to market conditions. It was nice to choose the setup and just send the request to my broker and get the email at the end of the day telling me what had happened with the trade...no watching the screen and making trades to setup the strangle...nice.
Today the numbers are not so good so I will wait until Monday to place another for a better profit target. Yesterday's was about $420 profit to expire on November 30th, today the trade was only worth $309, same expiry. I am going to aim for $400 targets or higher mainly as this gets my return per trade up near 10% and my annualized return close to 100%.
The goals are going to start at making the first $4000 to cover all my fees for the year, then the next $5000 is going to cover adding another trade to the concurrent trade number OR start doubling one trade in the mix. Based on some backtesting goal one is possible in the first 3 or 4 months unless I maximize my trade quantity. My testing was using up to five concurrent trades and I could place up to seven.
The idea is to be able to diversify the trades so that I spread my risk of a major market move over many trades. A strangle takes advantage of selling options for profit and buying options for protection so the net profit results from the sales being worth more than the protection. Seeing as these are based on the S&P500 the call spread is set much higher than the current level and the puts are much lower. As long as the S&P remains within those boundaries there is profit to be had. Placing trades as the market moves every 20 to 30 points allows the strangles to stagger and "bracket" the market at varying levels, this amounts to diversification. As the market goes up the next trade will bracket higher and as it moves down it will bracket lower. This has my trades moving with the market and a sharp up move may only affect a trade that was placed at, a much lower level but not the three or four others at a higher level. Most trades are, at most 45 days in duration.
I'll set up a chart to show this another time.
Jeff.
AS far as my trading is concerned there is no real movement to talk about. With the pullback in the market I expect to realize a few losses soon as one position expires in November and it likely will not move fast enough to recoup me much. A bunch of others are way down but have longer to go so there may be some promise there. I have a few that are in the green after spending some time in the red and one or two that the stock gapped down dragging the option price with it.
Having said that, if I had been in these stock positions instead of options I would be losing my shirt in most cases. The downside to the options is the expiry though. At least with the stocks I could choose to hold them if they looked like they were going to come back, some are not going to fast enough for me though.
Even though many are down it is a comforting feeling to know that, in the few cases that the option has hit zero...it cannot go any lower.
I should mention my overall strategy mistake.
I had decided that $120 is my loss allowance and that dictates the position size of the trade. I will take positions of a single contract that are higher than $1.20, as high as $2 but I will not take multiple contract positions that are any higher than the $1.20 or maybe $1.30. The issue is not that decision, the issue is that I still had a few positions that were far larger than this and I have let them go rather than placing a stop loss. So I have some $400 plus trades that I should have pared down at least or just stopped at worst.
Also, a few of these are from service advisories that I no longer subscribe to, even though I can chart and track them easy enough to determine where they are going (the cancelled services really only used some basic technical studies and a bunch of guesswork afterall) I had gotten lazy about them.
Perhaps I should have just cleaned house and brought everything in line. Hindsight is wonderful. At least I had a decent profit to also work with on this.
So my strategy is to hold out for the expected rally, if it does not materialize I will close some losing positions, let a few expire to save the commissions as they are not worth trading now, regroup and keep on slugging.
On the Optioneer/Strikepoint side I placed a trade yesterday that did not get filled...due to market conditions. It was nice to choose the setup and just send the request to my broker and get the email at the end of the day telling me what had happened with the trade...no watching the screen and making trades to setup the strangle...nice.
Today the numbers are not so good so I will wait until Monday to place another for a better profit target. Yesterday's was about $420 profit to expire on November 30th, today the trade was only worth $309, same expiry. I am going to aim for $400 targets or higher mainly as this gets my return per trade up near 10% and my annualized return close to 100%.
The goals are going to start at making the first $4000 to cover all my fees for the year, then the next $5000 is going to cover adding another trade to the concurrent trade number OR start doubling one trade in the mix. Based on some backtesting goal one is possible in the first 3 or 4 months unless I maximize my trade quantity. My testing was using up to five concurrent trades and I could place up to seven.
The idea is to be able to diversify the trades so that I spread my risk of a major market move over many trades. A strangle takes advantage of selling options for profit and buying options for protection so the net profit results from the sales being worth more than the protection. Seeing as these are based on the S&P500 the call spread is set much higher than the current level and the puts are much lower. As long as the S&P remains within those boundaries there is profit to be had. Placing trades as the market moves every 20 to 30 points allows the strangles to stagger and "bracket" the market at varying levels, this amounts to diversification. As the market goes up the next trade will bracket higher and as it moves down it will bracket lower. This has my trades moving with the market and a sharp up move may only affect a trade that was placed at, a much lower level but not the three or four others at a higher level. Most trades are, at most 45 days in duration.
I'll set up a chart to show this another time.
Jeff.
Wednesday, October 21, 2009
Optioneer on the way
I sent the first cheque to Strikepoint Trading today so I will be trading some time next week. I didn't get the great USD drop last Wednesday but I made out OK with a $1.085 conversion including fees.
I am looking forward to trading these different strategies that will be available to me through the broker.
Jeff.
I am looking forward to trading these different strategies that will be available to me through the broker.
Jeff.
Big news day, mixed markets.
I am out of town for a few days but I am checking in to see what is up.
I see there was a pullback which should allow me to get into a couple of trades that were setup today but I could not be there to make them live.
I see a position took a large hit, Triquint Semiconductor took a large hit (20%) aftermarket due to a slight miss, this was a position with a service that I have already cancelled...I think that this miss was unexpected so I don't begrudge the call... I am not looking forward to the drop in the option price in the morning,
Overall today has more news bits on the positions that I have open by a long shot. There was an entire page of headlines compared to a normal traffic of at most a third of a page.
I updated my performance page as I had a loss logged this week, I still was ahead of my target but this TQNT will likely nail me but I have the February option so I will give it some time to come back before bailing. I will lose the intrinsic value of 50 cents and some level of extrinsic value. The option is valued at $1.40 at the close and cost me $1.30 when the option was slightly in the money. So maybe it will be around 80 cents.
I have my orders in for tomorrow based on today's activity.
Jeff.
I see there was a pullback which should allow me to get into a couple of trades that were setup today but I could not be there to make them live.
I see a position took a large hit, Triquint Semiconductor took a large hit (20%) aftermarket due to a slight miss, this was a position with a service that I have already cancelled...I think that this miss was unexpected so I don't begrudge the call... I am not looking forward to the drop in the option price in the morning,
Overall today has more news bits on the positions that I have open by a long shot. There was an entire page of headlines compared to a normal traffic of at most a third of a page.
I updated my performance page as I had a loss logged this week, I still was ahead of my target but this TQNT will likely nail me but I have the February option so I will give it some time to come back before bailing. I will lose the intrinsic value of 50 cents and some level of extrinsic value. The option is valued at $1.40 at the close and cost me $1.30 when the option was slightly in the money. So maybe it will be around 80 cents.
I have my orders in for tomorrow based on today's activity.
Jeff.
Monday, October 19, 2009
Closer to expectations
My so far favourite service trial...I'll name all these another time.
Same basic criteria as last time, different service.
Total trades = 83, 46 winning trades, 20 greater than a 100% return, some over 200%
$5000 account MLA = $120 (not including commissions)
Position size = maximum $120 trade value (many 15, 25 cent range, single contract is silly)
today's balance = $5,265
MLA = suggested exits
today's balance = $4,343
Tinkering with MLA and reducing it to $120 commission included yields $5,669
$10,000 account MLA = $120 (not including commissions)
Position size = maximum $120 trade value (many 15, 25 cent range, single contract is silly)
today's balance = $5,265 (no position size change so no real change expected here)
MLA = suggested exits
today's balance = $9,343 (no position size change so no real change expected here)
$10,000 account
MLA = $120 (not including commissions)
Position size = double position size (the win rate goes up to 47)
today's balance = $12,092
MLA = suggested exits
today's balance = $10,248
Tinkering with MLA and reducing it to $120 commission included yields $12,900
$20,000 account MLA = $120 (not including commissions)
Position size = quadruple sizing
today's balance = $25,746
MLA = suggested exits
today's balance = $22,058
Tinkering with MLA and reducing it to $120 commission included yields $27,362
The claim to fame is a little over what I see produced but this is only part of the service as I was unable to use any of the selling features (naked puts and spreads) which netted more gains yet, it also is only the basic service that they provide, I signed up for the pro service as well and they are operated independently, for the most part. In my actual trading so far each portion has returned the same actual cash amount and, seeing as cashflow is my target, they both serve the purpose.
I could reduce commission costs by only trading one side and just doubling my sizing but I like really active accounts, so for now I will stick with both services through the trial.
When I tinkered with the MLA and reduced it by $30 per trade the profit margin went up, substantially. I may have been knocked out of a trade or two due to whipsaws and this may reduce the effectiveness somewhat but it give s a good indication of what could be achieved with a little trade management. As it is I have bought lower and sold higher than the recommendations frequently enough to be worth the effort. Today I closed a trade for $30 more on a single contract than the recommendation suggested...I placed a limit then changed it to a market when the limit was not reached but while the price was at it's apparent peak for the morning.
Jeff.
Same basic criteria as last time, different service.
Total trades = 83, 46 winning trades, 20 greater than a 100% return, some over 200%
$5000 account MLA = $120 (not including commissions)
Position size = maximum $120 trade value (many 15, 25 cent range, single contract is silly)
today's balance = $5,265
MLA = suggested exits
today's balance = $4,343
Tinkering with MLA and reducing it to $120 commission included yields $5,669
$10,000 account MLA = $120 (not including commissions)
Position size = maximum $120 trade value (many 15, 25 cent range, single contract is silly)
today's balance = $5,265 (no position size change so no real change expected here)
MLA = suggested exits
today's balance = $9,343 (no position size change so no real change expected here)
$10,000 account
MLA = $120 (not including commissions)
Position size = double position size (the win rate goes up to 47)
today's balance = $12,092
MLA = suggested exits
today's balance = $10,248
Tinkering with MLA and reducing it to $120 commission included yields $12,900
$20,000 account MLA = $120 (not including commissions)
Position size = quadruple sizing
today's balance = $25,746
MLA = suggested exits
today's balance = $22,058
Tinkering with MLA and reducing it to $120 commission included yields $27,362
The claim to fame is a little over what I see produced but this is only part of the service as I was unable to use any of the selling features (naked puts and spreads) which netted more gains yet, it also is only the basic service that they provide, I signed up for the pro service as well and they are operated independently, for the most part. In my actual trading so far each portion has returned the same actual cash amount and, seeing as cashflow is my target, they both serve the purpose.
I could reduce commission costs by only trading one side and just doubling my sizing but I like really active accounts, so for now I will stick with both services through the trial.
When I tinkered with the MLA and reduced it by $30 per trade the profit margin went up, substantially. I may have been knocked out of a trade or two due to whipsaws and this may reduce the effectiveness somewhat but it give s a good indication of what could be achieved with a little trade management. As it is I have bought lower and sold higher than the recommendations frequently enough to be worth the effort. Today I closed a trade for $30 more on a single contract than the recommendation suggested...I placed a limit then changed it to a market when the limit was not reached but while the price was at it's apparent peak for the morning.
Jeff.
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