Kelly Park

I would just use a different option as an example, one with a price that isn't close to a round number like 10. Then there aren't two possible ways to get to the same answer. It is just easy to confuse math issues when discussing percentages, when one of the operands is 10. The article was good and made the points you intended. It is probably easier for me to see how a newbie would misunderstand something, since I am learning so much of this myself.

Good article, Kim. I have one suggestion, though. In your example, you used an AAPL option worth $10.1 and theta of -0.22. The "round" price of the option might lead to confusion about interpretation of theta as a dollar value or a percentage. With the call value right near $10, a beginer might be confused about whether to interpret theta as taking 22 cents away or 2.2%. (I know it is the same in this case, but with a different call price, it would be different.) If you used an option with a price of, let's say $8.40, then the theta of -0.22 would decrease the option value by 2.6% and the interpretation of theta would be clearer. (I'm not sure my comment is clear. I hope so.)

Although I have almost made the mistake of entering order that were the opposite of what I wanted, due to IBs funky platform, I never actually did . . .until the September RUT IC trade. I was real happy with my 4.75 entry and didn't even notice the mistake for a couple of days, as it started going down when I thought it should be going up. Looked more closely and, viola, I was in a RIC instead. I haven't learned all the most efficient ways to trade in TWS yet, just enough to git 'er done. Something else to put on the "to learn" list. (I wasn't sure what to expect long term in the RIC, so I exited for 1.8% gain in 3 days. Recovering from a stupid mistake with a gain, any gain, is a good day.)

Personally, I don't see good services, with differing trading strategies as competitive. No matter how successful SO gets, it will still only be for a portion of a portfolio. Unless SO grows into a more diverse role of overall portfolio diversification, we all need additional investment strategies that are complementary to SO. I feel fortunate to have found an honest service like SO and would join others of similar quality if I knew about them. That said, it is Kim's site, so his call. (Optional pun intended.)

No wonder my ears where burning this weekend. That was some heavy conversation for a Saturday. Y'all seriously need to do more fishin'. Seriously, I hope pgrace is still reading this forum, even if not posting, because I understand his frustration, as do all IB users. The exchange fees are a pain, especially their unpredictability. But I went through my commissions and they are starting to come down and the average is dropping. I don't know why, but at first I was getting many 1.17 contracts and a few 0.96s, never at 0.70 to 0.75. Now I am getting more 0.70 to 0.75 and a few below that (so liquidity rebates must have been applied). I have been with IB for about a month now and my average cost has dropped from over a dollar to about 0.92. Since my later trades have been cheaper, the average should keep coming down some more. So, some of it may have been just luck. My orders have not changed. Based on IB customer service advice, I have changed my Global Configuration to Highest Rebate, instead of SMART. I have not noticed any change in the fills I'm getting and since commissions vary so much, there is no way to know if it has affected commissions or not. But I'll stick with IB for now. It is nice to not have a per trade fee, so I can make smaller trades while I am still learning the SO strategy. When I feel comfortable scalling up my trades, I'll re-evaluate commissions.

You make a good point about diversification, including not relying too much on this service (or any other). It begs the question, what other services are available that have proven themselves to be high quality, profitable services in the long run? I'm sure there are SO members that have tried other services and some of them may have turned out well. (I'm sure horror stories are even more common, but I'd rather not open that can of worms here.) How about a discussion of other services which might complement SO and diversify our portfolios? Based on some of Kim's and Chris's posts, I can see a day when SO expands to include strategies other than pre-earnings volatility plays (well, it already does with the calendars and ICs) as a more diversified service, perhaps using additional market trend indicators to overweight and underweight the various types of trades at different times. Until then, some of us might like know where we can diversify our trading strategies, without falling into one of the many traps out there.

Unfortunately, I am not undercounting contracts. I am getting hit with 0.45 per contract exchange fees on most trades, on some or all legs. And that is with limit orders that sit on the boks for awhile before filling. I had a good fill yesterday on a AAPL diagonal, rebated so it was 0.70 total for both legs. Maybe it will all average out eventually.

I just switched to IB a couple of weeks ago, so I am hoping to get it sorted out and be down to the 0.75 or so average that others are experiencing. But I wanted folks that are considering IB (and other brokers) to understand that the exchange fees are not insignificant. Marco's explanation, earlier in this thread, is very helpful at understanding them. But even placing limit order between Bid and Ask, I am still getting most commissions between 0.82 and 1.17, which can alter your decisions about which trades to enter and their sizing.

Please understand the exchange fees BEFORE deciding on a new broker. I switched to IB and am paying between 0.82 and 1.17 per contract for almost all trades, due to exchange fees. I know that is not Kim's experience with IB, and maybe mine will gradually come down, but right now it is frustrating.

I have been in communication with IB support about the high commissions I have been paying and they told me to set my options routing default (in the Global Configuration/SMART Routing menu) to Highest Rebate instead of SMART. Is this a good idea? How do you guys have it set? Will this reduce my ability to get good fills?

I got out of the 136 straddle with a 0.4% loss, not bad considering that I did a very dumb thing in the process. I'll provide a cautionary tale in case there is anyone out there equally capable of experiencing badly timed brain farts. IBy the time I saw the alert, the 135 straddle was overpriced, so I waited until the 136 was available for 3.61. Nothing good happened, so when Kim bought the 134/136 to convert to a RIC, I (being temporarily brain dead) followed suite, forgetting that he was in at a different strike than me. So what I ended up with was a long 136 put, short 134 put spread. Fortunately the market helped me out today and I got very close to breakeven. Could have been disastrous on other circumstances, though. So, take the time to think things through, don't feel rushed near close, and really LOOK at you trade ticket to see what happens if you click "Transmit". (This is why I still have the "Preview" show up for all trades.) There is my dirty laundry for the day!

Which report? The Trade Confirmation reports show commissions, but don't break out the fees or show the exchange.

Also, I just got a notice form IB that looks like they are adding another $0.03 per contract to all orders, for some fee they previously forgot about.

Thanks, Marco. Can I still access that information later, after my trade window has been closed? I'd like to go back over the past few weeks trades and see where they were all executed.

A bit of a followup. The only 2 trades I have had that were not 1.17 per contract were the GOOG and AAPL RICs. I don't know if they traded on a different exchange (that doesn't have liquidity fees) or if they just filled more slowly and were not considered to be reducing liquidity. I've been trying to find a wayo back over my trades and see what exchange they were traded on, but can't seem to find that information. The trade confirmation reports have commissions, but no breakdown of fees included.

Our last posts overlapped. I should be more patient. (Never happen!) I wouldn't mind the 'crap shoot" of sometimes getting routed to another exchange and paying the fee, as long as rebates average the whole thing out in the long run. I just got worried when ALL of my orders where well above 0.70. I guess I'll keep an eye on it for a few more weeks. Thanks for the explanations, Kim and Marco.

Marco: I'm sorry. My last post SHOULD have said I place LIMIT orders. I never place market orders. Still interested in what you meant in your post. It seems like you have some handle on how to add liquidity, where possible, with your orders, so I need to understand that better. Thanks.

Marco, could you explain what you mean by not lifting offers and hitting bids. Clearly this is another area where I sorely need education. I typicall place a market order for just above mid-point between Bid and Ask (if I am good with the current prices) or just below, if I think the days market action might bring the price down a bit more. Sometimes, if the order sits for awhile, I will raise my offer a bit, to try to fill it. This seems to be the way others do it and has worked for me before, but does it have a negative impact on exchange fees.?

Her explanation was that "those Combo orders you are doing" (said with a sneer in her voice) are "very difficult to fill", so they always reduce liquidity and incur exchange fees. By legging in, one leg would be increasing liquidity and might get a rebate. That's what she said. She also recommended market orders!, since they increase liquidity. Again, her words, not mine. So, when you say your average is 75-80 cents, do you mean in a month? And what is the range? My lowest in 0.89 and highest 1.18., averaging abot 1.15.

Wow. I have just gotten off the phone with the Interactive Brokers customer service and I cannot believe how rude and officious they were. My chat session was cutoff and all they did was send me links to their website anyway. On the phone they cut me off and spoke to me like an idiot child. (Idiot I may be, but they shouldn't assume before they know.) The issue I was asking about was commissions. I understand from SO discussions that there are exchange fees which add to or subtract from the 0.70 per contract. I know KIm said his trades still average about 0.75, so I didn't worry too much about them until I started trading at IB and all of my trades have been 1.18 per contract. Their explanation was that some exchanges charge fees, some don't and with SMART routing you can't tell, so you just have to live with it. They suggesting legging in and out of every trade! At 1.18, I am paying almost as much as I was at Fidelity and if I scale up my position size, it will be MUCH more expensive at IB. I know Kim and others use IB especially for commissions sensitive trades like those on SO, so will someone please help me figure out how to reduce these commissions at IB. At these rates, these SO trades don't make much sense.

I'm very interested in looking into this more. Since starting to follow Kim's pre-earnings trades, I have felt that playing the IV drop at earnings should be more predictable and profitable, if setup properly. Shorter holding time, and the ability to use the pre-earnings IV rise as a predictor of the post-earnings IV drop. But I've had trouble finding a trade that has limited loss potential and is resilient to large stock movements. I still have some more learning to do on single calendars, but let's keep studying doubles. I have also thought about the straddle calendars mentioned above, but Kim, in a Seeking Alpha thread, commented "what's the point?". Wouldn't a straddle calendar be more nuetral to movement in the underlying but still capture time value?

Based largely on this forum, I have opened an account with IB, specifically for these earnings trades. Now I am faced with the daunting task of learning a VERY different platform than I am used to. I have used Fidelity's for awhile, so I am used to it, but it is also much more intuitive than IB, I think. IB seems more flexible and customizable, but I'm really having trouble getting up to speed. Any suggestions for best setup of the IB for doing these earnings trades. What windows should I use, what columns, to see everything I need and not what I don't? A few issues I have already: don't know where to find all information about filled orders, including commissions; orders show my limit order price as the Bid, so I can't tell what the market Bid price is after I have submitted an order; should I be using Mosaic or something else?

So you meant that opening a calendar when IV is low was good as a hedge to the straddle, not that a sstand-alone calendar trade should be opened when IV is low, right? I'm still curious how a calendar would behave in low to high IV versus high to low IV, al other things being equal.

When you say it is good to open a calendar when IV is low, are you referring to the general low volatility environment that makes staying near the strike more likely? Ignoring movement in the underlying, what is the difference in carrying a calendar from low to high IV versus from high to low IV? Is there a major advantage either way?

I have had some trouble getting fills lately, even at the Ask. While digging into Fidelity's Directed Trading system, I noticed a statement that All or Nothing orders may be given a lower priority. I had started doing AON orders because other SO members have commented on partial fils they were getting, but maybe it is preventing me from getting fills at all. Has anyone else run into this?