Interactive Brokers March 2009

Transcription

1 Interactive Brokers March 2009

2 Disclaimer: This material contains information only. ASX does not represent or warrant that it is complete or accurate. The information is for education purposes only and any advice should be sought from a professional adviser. If you are seeking advice (including a recommendation or opinion) about a financial product you should consult an Australian financial services licensee. To the extent permitted by law, no responsibility for any loss arising in any way (including by way of negligence) suffered by anyone acting or refraining from acting as a result of this material is accepted by ASX. This disclaimer extends to any private discussions or correspondence with the presenter of this information. copyright ASX Operations Pty Limited ABN ( ASXO ). All rights reserved. This publication should not be reproduced, stored in a retrieval system or transmitted in any form, whether in whole or in part, without the prior written consent of ASXO.

3 ASX Background 2,100 Australian companies listed 78 Overseas companies listed Market Capitalisation $1,630 billion. 2nd largest sharemarket in the Asia-Pacific region ASX was formed in 1987 by amalgamation of six independent stock exchanges all with history dating back to the 19 th century 1 st exchange was Melbourne in 1861

4 Exchange Traded Options March 2009

5 Exchange Traded Options (ETOs) Available over Top 100 companies and major indices Call Options lock in a buy price Put Options lock in a sell price Time period can be a couple of days, weeks, months or years Popular option stocks: BHP Commonwealth Bank XJO (S&P/ASX 200 index)

6 Buy or Sell Rights / Obligations B U Y E R S E L L E R CALL The right to buy The obligation to sell PUT The right to sell The obligation to buy

7 Spreads What are spreads? Hedged positions where part of the spread will appreciate in value and the other will depreciate with moves in the stock/index May comprise both the purchase and sale of options

8 Spreads Why traders spread 1.Spreads may offer better profit potential than outright purchases or sales of options 2.Spreads help control risk

9 Bull Spreads Moderately bullish Buy low strike / sell higher strike; same expiry You believe the stock has upside potential but don t want to buy /sell options outright Limited potential up and down

10 Pointers for bull call spreads Watch the cost of the spread - is it matched by the potential profit Close early if the stock exceeds expectations. Options are stock settled, i.e. unrealised profits are not paid in cash daily as per futures

11 Bull put spread As with all bull spreads - buy lower strike, sell higher strike Receive a credit, suits clients that don t like paying. Need collateral to cover margins to the tune of the difference between strikes, less credit

12 Pointers for bull put spreads Watch the short put - unwanted exercise will unwind the strategy Can occur any time the put is deep in the money i.e. trading at intrinsic value On dividend paying stocks assignment usually occurs on the ex div day.

13 Bear spreads Moderately bearish Buy high & sell low strike, same expiry You believe stock has downside potential but don t want to buy /sell options outright

14 Pointers for bear put spreads Debit spread no margins Hope the stock will fall to the strike price of the written put Chance of early exercise is greatly reduced because an out-of-the-money-put is sold

15 Bear call spread Sell call at lower strike price & buy at higher strike with the same expiry month Best established when the stock is close to the lower strike, otherwise you will be selling an option with little time value Credit spread margins payable

16 Pointers for bear call spreads Hope stock falls & options expire worthless Consider the bear put spread - time value works better, no margins, no risk of early exercise.

17 Spread summary Buyers of spreads limit profit potential compared to buying options outright Sellers of spreads limit risk compared to selling options naked Spreads allow investors to take advantage of limited stock price movement

18 Interactive Brokers in conjunction with Australian Stock Exchange p r e s e n t : Options & Option Spread Trading Webinar begins at 12:30 pm (Sydney) Graham O Brien, ASX and Neil Swanson Interactive Brokers LLC, Sydney (02) nswanson@interactivebrokers.com Exchange and Industry Sponsored Webinars are presented by unaffiliated third parties. Interactive Brokers LLC is not responsible for the content of these presentations. You should review the contents of each presentation and make your own judgment as to whether the content is appropriate for you. Interactive Brokers LLC does not provide recommendations or advice.

19 IBG Strength and Security Facts IBG and affiliates currently hold $4.4 billion in equity capital. IBG and affiliates handle over 1,000,000 trades per day. IBG conducts its broker/dealer and proprietary trading businesses on over 80 exchanges and market destinations worldwide. IBG has been in the trading business for 32 years. We have always been at the forefront of trading innovation, starting with the invention of the first floor based handheld computer in Customers are protected by up to $30 million of SIPC and Lloyd's of London securities account protection.

20 IBG Strength and Security Facts Our real time margin system continuously enforces limits for each account and automatically liquidates positions if any individual account violates its limits at any time. All orders are automatically vetted on a pre trade basis. We do not hold CDOs, Subprime Debt, or Credit Default Swaps. With the exception of foreign exchange, we trade only exchange listed products that are cleared through central clearing houses and are marked daily to external closing prices disseminated by the exchanges. Positions and resulting payables/receivables are automatically reconciled against external sources daily.

21 INTERACTIVE BROKERS FINANCIALS Net Revenues $1,850 MM (+26%) $1,468 MM Net Profit (before tax) $1,250 MM (+34%) $932 MM Earnings Per Share $2.24 (+ 41%) $ was a record year, for the first time our profits have exceeded the billion dollar mark," said Thomas Peterffy, our CEO. "It is not easy to report record profits in a year that has been generally difficult for our industry.

22 Australian Product offered on TWS Exchange Traded Funds (ETFs) Stocks 2,110 Stocks Options & Option Spread Trading 107 Options (including XJO Options under IB ticker AP) Futures SPI (Futures and Future Options on the S&P/ ASX 200 Index) CFD s Sydney Futures Exchange Exchange Listed CFD s

23 Globality Why Interactive Brokers? Direct Market Access to over 80 electronic exchanges and trading venues world wide including: Australia, Hong Kong, Japan, Singapore, S. Korea, U.S.A, Canada, Mexico, Belgium, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, U.K. Trade assets denominated in multiple currencies from a single account. Convert currencies at market determined rates as low as 1/2 PIP wide, or create a position collateralized by a non native currency. Options, futures, stocks, forex, bonds, cfd s and funds around the world are held and reported in a single IB Universal Account SM

24 Why Interactive Brokers? Best Trade Execution & Trade Cost IB has automated every aspect of the trade process in house, enabling us to offer ultra low commissions IB SmartRouting SM is designed to search for the best price available at the time of your order, and unlike other routers, dynamically route and re route all or parts of your order to achieve optimal execution. IB independently routes US stock, option and futures spread order legs to the best possible venue or natively routes your combination seeking price improvement, with IB undertaking the risk of partially executed orders. IB SmartRouting Autorecovery SM re routes your options orders in the case of an exchange malfunction, with IB undertaking the risk of double executions.

25 Why Interactive Brokers? Risk Management & Control IB Risk Navigator SM, a real time market risk management platform that unifies exposure across multiple asset classes around the globe. Lets you easily identify overexposure to risk by starting at the portfolio level and drilling down into successively greater detail within multiple report views. Each predefined report presents a summary of your portfolio from a different risk perspective, for example by position, underlying, by industry and more. View Exposure, Value at Risk, Delta, Gamma, Vega, Theta as well as profit & loss and position quantity measures for different portfolio views. Report data updates every 10 seconds, and immediately upon changes to your positions. What if scenarios let you hypothetically modify positions to see how changes in your portfolio will affect your risk summary.

26 Why Interactive Brokers? Trading Technology Market maker designed Trader Workstation (TWS) optimizes your trading speed with a single multi product spreadsheet interface offering real time streaming quotes and quick click order entry. Simple, direct connection to our trading system, through the TWS APIs or using our CTCI FIX interface. Customized order entry modules designed to meet specific trading needs such as options, forex, spread and basket trading.

27 Why Interactive Brokers? Financing Portfolio Margin Accounts with real time risk management which allows increased leverage with greater safety. Single Stock Futures EFPs available as a financing alternative with market determined interest rates. Competitive interest rates charged on debit balances.

28 Reporting Why Interactive Brokers? Flexible download files available in text or XML format. Customizable Activity Statements in PDF or HTML format. Daily Margin Reports detail requirements by underlying.

29 Option Trader Standalone screen shows market data for the underlying Set up option chains based on the underlying Access to your options orders, executions and portfolio information Drives the data for the option model editor and analytics window Lets you create combination Spread orders

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31 Generic Combo Selection Option Spreads Create a unique combination by manually defining an order leg by leg on the Generic tab, or drag securities for US options only Construct the separate legs, and execute as a single transaction routed directly to an exchange Single Create a single order with a named strategy using the template The IB Single tab shows the trader a diagram representing the profit/loss profile of the strategy they are trading Multiple Create a group of individual combination orders on the same underlying at the same time

32 Spread Trader - Option Spreads Create a matrix of variations on an option strategy for a single underlying Create and transmit multiple combination orders Option Wizard define exactly how you want the combo lines displayed in the matrix by assigning either a column position, row position or fixed value to each parameter Use filters to help specify exactly which contracts you want to display in the matrix

33 ASX Option Spreads Box An order to simultaneously purchase and sell two synthetics in identical numbers at different strike prices. For example: Buy 1 April02 95 call, Sell 1 April02 95 put, Sell 1 April call, Buy 1 April put. Butterfly An order to simultaneously purchase an option with one strike price, purchase an option with a second strike price, and sell two options with a third strike price that is midway between the prices of the first two options. The ratio for a butterfly is always 1 x 2 x 1. For example: Buy 10 March02 95 calls, Sell 20 March calls, Buy 10 March calls. Calendar An order to simultaneously purchase and sell options with different expiration dates, where both have the same underlying, right (call or put) and strike price. This spread is sometimes referred to as a time spread. A calendar spread whose options have different expiration dates and different strike prices is sometimes referred to as a diagonal spread. For example: Buy 1 June call, Sell 1 March call. Diagonal An order to simultaneously purchase and sell options with different expiration dates and different strike prices, where both have the same underlying and right (call or put). For example: Buy 1 June call, Sell 1 Sept call.

34 ASX Option Spreads Iron Condor An order to simultaneously purchase an out of the money put bull spread, and sell an out of the money call bear spread, where all legs have the same expiry. Purchase an iron condor: Buy 1 XYX JAN PUT, Sell 1 XYZ JAN PUT, Sell 1 JAN Call, Buy 1 JAN Call. Sell an iron condor: Sell 1 XYX JAN PUT, Buy 1 XYZ JAN PUT, Buy 1 JAN Call, Sell 1 JAN Call. Risk Reversal An order to simultaneously purchase (or sell) a put option and sell (or purchase) a call option in identical numbers where both have the same underlying and expiration date, but the call generally has a higher strike price. Purchase a risk reversal: Buy 1 XYZ April04 75 put, Sell 1 XYZ April04 95 call Sell a risk reversal: Sell 1 XYZ April04 75 put, Buy 1 XYZ April04 95 call Straddle An order to simultaneously purchase (or sell) a call and a put in identical numbers, where both have the same underlying, expiration date and strike price. For example: Sell 1 Dec02 90 call, Sell 1 Dec02 90 put. Strangle An order to simultaneously purchase a call and a put with different strike prices, where both have the same underlying and expiration date. In the case where both the call and the put are out of the money, this order is referred to as an inside strangle. For example: Buy 1 June02 95 put, Buy 1 June call.

35 ASX Option Spreads Synthetic An order to simultaneously purchase (or sell) a put option and purchase (or sell) stock where both have the same underlying. Purchase a synthetic call: Buy 1 XYZ April03 75 put, Buy 100 shares XYZ Sell a synthetic put: Sell 1 XYZ April03 75 put, Sell 100 shares XYZ. Vertical An order to simultaneously purchase and sell options at different strike prices, where both have the same underlying, right (call or put) and expiration date. This spread is sometimes referred to as a price spread. Call vertical spread example: Buy 1 June call, Sell 1 June call. Put vertical spread example: Buy 1 March put, Sell 1 March02 95 put New combos have been added for Australia in TWS version 893: Buy Write (Covered Call), Conversion, Delta Neutral, Reversal, STK/Option, Synthetic Call, Synthetic Put

36 Interactive Analytics Option Analytics Displays values that reflect the rate of change of an option's price with respect to a unit change in each of a number of risk dimensions. Model Navigator Interactive Analytics uses current market data along with interest and dividend values to calculate implied volatilities and option model prices Risk Navigator Real time market risk management software Easily identify overexposure to risk by starting at the portfolio level and drilling down into successively greater detail within multiple report views

37 Undercutting The Competition Stocks from AUD 6 a trade (0.08% trade value) Options AUD 1.88 per contract (+1.12 ACH fee) Futures AUD (plus exchange fees) Forex from 1/2 PIP wide CFDs: from AUD 6 a trade (0.05% trade value) Compare the above rates to what you would pay at other brokers!

38 Undercutting The Competition Interest and Financing Interactive Brokers pays market competitive rates. We use internationally recognized benchmarks for overnight deposits as a basis for determining the rates at which we pay and charge interest. AUD Benchmark is based on LIBOR (currently 3.7%) Interest paid on long positions (AUD) >150K = 3.45% < 150K = 3.2% Interest charged on short cash balances (AUD) <150K = 5.2%, >150K = 4.7%, >1.50mill = 4.2% Compare the above rates to what you would pay/ receive at other brokers!

39 Sales Representative Neil Swanson Interactive Brokers LLC, Sydney (02) When completing the application, select salesperson Neil Swanson. This will ensure you have an Australian representative on the account.