Graham: Here's some answers (as best I can):
I had to print out your post to make sure I get to
all the points you asked about in my reply.
First, let me review the road taken to this pass
in terms of the TSE's decision to change the
system for trading options and futures. A new
regime took over about eighteen months ago and
they finally got around to having a look at
derivatives. I was asked to serve on the Deriva-
tive Advisory Review Group (DARG). I was initially
enthusiastic, since we have been virtually ig-
nored for the last decade. When was the last time
you saw any ads or promotional material about
options or futures from the TSE? Other members
of DARG were Institutional users, upstairs pros,
futures locals, etc. Very soon in the process, I
began to have concern about the direction the
exchange was taking. A world-wide tour of other
options exchanges were all to those that had
completely electronic trading, save one which
was in the process of converting. The exchange
dismissed out of hand reviewing either the CBOE,
the Amex, or any other open-outcry markets, saying
we could not match the scale of these exchanges.
I believe that it is the principles of trading that
are the most important, not the procedures, but
a switch to a completely automated system as proposed
by the exchange will serve the Canadian market
poorly. Screen-based trading, coupled with some
rule changes they propose, will lead to what's
known as a dealer market, a la NASDAQ. They further
propose to abolish client priority, for no reason
I can discern. I have always stood four-square
behind client priority and the fairness inherent
in an auction market. Why? Because I need people
to trade my stocks and feel they are treated fairly
and come back to trade again. This is *my* self-
interest.
I feel this fair market is threatened. I have used
strong language in my opposition to the exchange's
'blueprint', but then I believe if you smell smoke
in a crowded theatre, you don't whisper to the person
next to you, "Do you smell smoke?". You yell FIRE!
I discovered the exchange has a 'truth-squad' which
has been downloading all my posts and building a
file. They cannot impeach any of my thoughts, but
my rhetoric will not play well with the Board.
Oh, well.
You asked about the use of stop-loss orders in
options. I wrote a post about market orders, I
believe in response to Andrjez, so I won't go over
that aspect of stop orders. What I will describe
is that we accept two types of stops...stop and
stop-limit. (Check with your broker to see if I
have these terms exactly right, I don't have my rule-
book at home.) The first is a straight stop,
triggered if a board-lot trade occurs at your
stop price. It becomes a market order to sell, and
you should be cognizent of the open interest, daily
volumes and trading history of the series you have.
The second type is a stop-limit. It is triggered
by a board-lot trade at your stop price, and becomes
a quasi-market order, except it cannot trade below
your lower limit (on a sell). In an extreme case
where your stop-limit order cannot be filled, (if
you set the range too small i.e., stop $3.50, limit
$3.40, or the market is free-falling and there are
no bids in the underlying equity), your unfilled
order will be sent to your broker, who should then
contact you. I've only seen this one time in 16
years. (Wanna guess what day?)
This is getting a little long, but I'll take a
shot at your question about spreads. The exchange
has maximum allowable spreads of .25 on quotes
bid under $2 and .50 on quotes bid >$2.00.
(exceptions are made for Leaps and long-term TXO
series.) In applying for the appointment for a new
listing, specialists may commit to call tighter
spreads. There is no way to legislate liquidity,
though, so take a look at the open interest and
daily volumes of a class of options. Also take a
look at the quote for the near-term at-the-money
call. If it's $2.00 - $2.50, don't even bother.
Lastly, you asked why your bid/offer between the
market doesn't always show. Was it for 10 contracts?
Since all posted markets are good for at least 10
contracts, we don't post odd-lots. You are protected
against being sold-through, and sometimes you get
a better fill. If a fifty lot trades on the posted
bid, a good specialist will have you buy your 5
lot at .50 rather than .60.
I don't know about gold options in Canada. We had
silver options for a number of years, but they
died out. Doesn't the ME have gold options? I think
so.
Thanks for your kind comment in a later post. My
daughter was, as we say at the racetrack, 'in tough'
against the best from fifteen Metro clubs in her
class, and she finished a well-earned fifth. Papa
was proud.
Porter |
