Subscribe Feed (RSS)Volatility side-effects at IB
August 16th, 2007 by eyal | Filed under Day Trading. |
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IB has just issues an interesting notice to traders through the WTS:
To CBOE, CFE traders:Effective immediately, the minimum margin for all VIX calendar spreads (index options and futures) will increase from $150 to $250.
I don’t trade these instruments at all. I’m guessing the risk and exposure level at IB increased significantly with traders loading up on these options, and at these volatility levels things just move too fast. With higher risk of course comes potential for higher gains. I don’t know any options traders but I’m wondering how it’s like out there for the small VIX trader.
I’m trading options, however it’s all positions I hold for weeks or months, never intra-day trades. The huge bid-ask spreads in options makes cutting losses in intra-day trading quite difficult. It is not so bad with VIX options and other highly traded index options (can be around 5% difference between bid and ask) but much worse stock options, sometimes even 50% or more difference between the bid and the ask.
Ah so it turns out I do know an options trader ;-) So what’s your take on the trading environment now? Good conditions or tricky ones for VIX options traders?
Damm, I wrote a long reply but got the security code wrong and it is all gone. Rewriting it in a shorter version – yes, it’s very tricky, excellent for the well capitalized and equipped pros with advanced arbitrage systems, bad for the rest (bad in this context means that if you profit it comes from luck and not from a positive expectancy system). I try to stay away from going against them, my positions are similar to a leverage long stock positions that benefit from the passage of time, namely, short bear spreads / puts on some stocks.
Oops sorry about the code thing, can’t find a better solution, I get tons of spam (and very few genuine comments lol).
Sounds like the small trader can get killed in this market.
I think I’ll spend some time studying this type of strategies. I’ve got stocks that I’m not selling anytime soon, maybe I’ll be able to generate some income from the time decay factor.