How do I get started trading equity options and futures?
I have a quant background in hedging, so I’m not asking for guidance on how to learn modeling or developing strategies for trading options. I have work experience doing option valuation and developing dynamic replication strategies, but I have never done the trading.
I want to start relatively small – I’m comfortable putting about $20K at risk. I would be looking to hedge options against options while trying to limit the amount of dynamic hedging. I expect that I’ll need set up some margin in addition to any net option premium. Is $20K reasonable?
Are there brokers specializing in options? Does anyone recommend CME, CBOE or other tools? (I know that some exchanges offer tools for subscription.)
Thanks!
about 1 year ago
OptionsXpress specializes in options, I don’t know about futures.
Interactive Brokers doesn’t specialize in options, but they do futures so I presume stock futures are available. IB handles stocks and bonds also, so I suppose you could use them for margin if you have them.
Account size all depends on position size and potential risk. Hedged trade implies to me that every trade has a max dollar loss, which helps planning quite a bit. Rule of thumb is you need to be able to withstand 20 losses before wiping out your account or its getting so small that you can’t trade. 20 losses in a row is unlikely, but 5 in a row is very common. If you can only stand 10 losses and you get 5 in a row, you’re under huge psychological pressure with half your stake or more gone. So if each trade has a maximum possible loss of $1,000, $20k should be fine, assuming you meet margin requirements.
about 1 year ago
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