The Ultimate Leverage Investment Thread

[stephenNUTS]

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Just bought (or put in the order to buy) some Jan 09 puts on crox. Its my first time trading options. Did I make a mistake by entering market order? I find etrade generally gets good market prices. Also what percent of your portfolio does it make sense to allocate per options position? Seems like 5% should be the max, right? Or does that decrease with longer dated options because your hypothesis is more likely to be correct and thus youll finish ITM more often (even if you dont get back your full contract buying price)

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Ahnuld,

A word of advice is NEVER put in market order for an option,I know the most liquid ones you wont lose more than .05,but on a stock like CROX,which I dont beleive has a highly liquid markt,(esp with alot of interest on the PUT side with stock so high)....the MM's will def. screw you at whatever exchage they trade that particular option.The spread alone on these types of illiquid options can be upwards of 20%

It also really has nothing to do with which broker you use(e- trade in your case),because if you are buying the underlying stock for instance,they can give you a better price just from their own inventory.

No broker-dealers carry inventory in the option arena,and they must physically go out and buy/sell it themselves on whatever exchange that particular stocks underlying option trades on

However when playing with options,the CBOE e.g. is ALWAYS going to get the best of it.Also by putting in a M/O for an illiquid option or any option for that matter,and the VIX/premiums are accordingly higher...you will never get the best of it with a market order.

IMO ...put out a "reasonably" priced bid/ask and let it sit there for awhile.Try and have the market come to you.

SF [img]/images/graemlins/cool.gif[/img]

[skindog]

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A word of advice is NEVER put in market order for an option,I know the most liquid ones you wont lose more than .05,but on a stock like CROX,which I dont beleive has a highly liquid markt,(esp with alot of interest on the PUT side with stock so high)....the MM's will def. screw you at whatever exchage they trade that particular option.The spread alone on these types of illiquid options can be upwards of 20%

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QFT. In my experience, you can often instantly shave off .05 or .1 of a price by entering your own limit price. Makes me feel like they're a bunch of damn crooks.

[ahnuld]

Yeah, I realized right after I put the order in that it was probably a mistake but I was in the shower and couldnt change the order fast enough. I got a decent price though, 15.30 when the current bid and ask is 15.10 and 15.60 so it didnt cost me much if anything in this instance. But I also realized given my opinion of the company it would have made more sense to buy more contracts OOTM, but for my first trade the conservative route probably isnt a bad idea.

[DcifrThs]

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OMG, wtf, are those serious...i have to go get an MRI for my foot but i'll back out the implied UK rates given US rates at certain levels for those prices but at first glance they look way off.

be back later.

Barron

EDIT: i just realized why the late maturity contracts are so high, b/c they are being pulled up by the short maturities via arbitrage. i'll dig more into this later but thanks a ton crushin for the post (is this available online instead of just through your image shack?)

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CrushinFelt,

do you know where i can get Pound denominated libor & euribor quotes? CME only does USD denominated libor & euribor.

i have backed out that the 3mo compound average pound libor rate for december to march must be 5.8823% for the 2.0395 USD/GBP price to be justified on forward pricing grounds.

similarly, the 3mo compound average pound libor rate 6mo forward must be 5.6070% to justify the 2.0334 USD/GBP price

these translate to the following maturities/prices for pound libor:

12/1/2007 to 3/1/2008: 94.1177 i.e. 3 mo, 3 mo forward
3/1/2008 to 6/1/2008: 94.3930 i.e. 3 mo, 6 mo forward

i want to now compare that estimate to the actual priced in pound libor rates. where i can get that? (i've searched the interwebs and came up empty so far)

thanks,
Barron

[CrushinFelt]

Sorry, don't know about that one. I'll look around a bit.

[CrushinFelt]

LIFFE has a Euro denominated, but I can't find a Pound denominated anywhere.

[The once and future king]

this might help

[CrushinFelt]

Yeeeeesh, those are high rates.

[DcifrThs]

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Yeeeeesh, those are high rates.

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yea i think i must be missing something here. i haven't figured out exactly what the arbitrage here would be but there seems to be a gaping one.

according to the USD/GDP futures prices from CME, the implied 3F3 rate (the 3 month rate 3 months from now) is 5.8823%, yet the UK based LIBOR rate above 3F3 rate is 6.1868%. but since one comes from a currency i'm not exactly sure how to extract the arbitrage.

obviously you want to but low sell high so borrow at the 5.8823% rate and invest at the 6.1868% rate, but there is a currency transaction in there somehow that has to be round trip.

i've had some wine and scotch though so i'm probably not best equiped right now to figure it out. i'll try this again tomorrow...seems like there is either a) an explanation as to what i'm missing, or b) a really cool arbitrage opportunity

Barron

[CrushinFelt]

USD/GDP?

Also, yes something definitely feels a little off here and 30 basis points is likely more than just a round trip cost.