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Friday, February 14, 2014

Where to Profit From Volatility

Options analytics firm Livevol joins broker ranks.

Options traders are a key market for most online brokers, primarily because they are much more active than investors who focus on a few stocks and some mutual funds. So it’s no surprise that analytical platforms for options traders have proliferated over time.

One of those analytical platforms, Livevol Pro, is offered as an add-on product by a number of online brokers, including tradeMonster. However, Livevol in the past year has been expanding its offerings to include trading. Its brokerage customers can trade options, of course, as well as stocks, and use the Livevol analytical platform for free.

Livevol has been around since 2009, with several available platforms. Livevol Core, for $79 a month, offers over 80 live market scans to help identify potential trades. You can modify the built-in scans, which identify volatility and technical events, to create your own personalized scanners, and flip through market sectors using a wide variety of volatility statistics. Livevol Pro, which includes advanced charting as well as tick-by-tick pricing updates, also lets you build skew charts displaying the volatility of each strike price by expiration date, that utilize two years of history. You can scan for covered calls, cash secured puts, iron condors, protective puts, and a variety of vertical spreads, as well. This platform is $300 per month.

Or you can sign up for a Livevol X account and get all of these tools for no additional charge beyond relatively low commissions. Utilizing proprietary technology, the Livevol platform efficiently handles enormous amounts of data. The options montage page displays live data as well as historical data; the platform is designed to optimize the flow of live information so that the historical displays don’t slow it down.

“As our name suggests,” says Catherine Clay, Livevol’s CEO and an alumna of options market maker Timber Hill, “volatility is something we spend a lot of time on.” Volatility tends to flatten during rising markets, but it displays spikes during market declines, even brief ones. Clay notes that the company’s proprietary technology powers a VIX-like calculation on every underlying stock that is optionable, looking at hypothetical 30-day, 60-day, and 90-day volatility. Historical volatility is also displayed for all optionable securities.

Livevol X is a platform that you download onto your computer. The layout is easily customized, and can be spread over four monitors. You can keep track of the time and sales of the options trades going through for the stocks on your watch lists, which gives an interesting picture of where traders believe the market is going.

The options montage, which Clay says is the focus for most of the firm’s customers, lets you play around with implied volatility so you can build your own model of an option’s price. “If you think you know where volatility is going, we can show you the theoretical price,” says Clay. You can create simulated positions in the montage and assess the risk as well as the trade’s impact on your portfolio’s profit and loss.

Livevol has skew charts built in, which usually look like a sideways smile--though some traders call it a smirk—as volatility is typically lower for the higher strike prices. But you can find skew charts that appear abnormal for a variety of reasons, such as a potential buyout or an upcoming earnings announcement. Abnormal skew can indicate a profitable trading opportunity, and Livevol lets you build a trade ticket directly from a skew chart.

Livevol’s trades are executed through Interactive Brokers, though you never see its interface. Portfolio-performance analysis can be monitored by underlying stock, expiration date, greek calculation, and a variety of other measures. If you have a lot of positions, you can organize them into folders and perform your analysis on a subset. You can also sort your portfolio by highest to lowest profit, or delta, or pretty much any other measure you can think of.

Commissions are on the low end of the market at $0.0065 per share for stocks (minimum charge of $1.50) and $0.65 per options contract (minimum of $1.50 per leg). Since Livevol clears through Interactive Brokers, they extend IB’s very low margin interest rates that currently range from 0.5% to 1.57%. You can get portfolio margining with an initial account funding of $125,000; to maintain it, you must maintain equity of at least $110,000.

There is no separate mobile platform for Livevol X, though, so these extensive options scanning tools aren’t exactly something you’d want to peek at on the road.

Published in Barron’s Online, February 10, 2014.

Posted by twcarey on 02/14 at 10:00 AM
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Thursday, February 06, 2014

Net Neutrality Ruling Could Hurt Small Investors, Brokers

If court’s decision stands, small investors and brokers may have to pay more or settle for less.

Thanks to the recent U.S. court ruling striking down parts of “net neutrality,” small traders could end up paying more for speedy transactions and data, and small brokers could find themselves at an added competitive disadvantage.

The changes would result from the U.S. Federal Appeals Court ruling on Jan. 14 that undermined the Federal Communications Commission’s basic Internet operating philosophy – that no one could restrict lawful network traffic by blocking applications or unreasonably discriminating against a transmission. Verizon Communications challenged the FCC’s position that all traffic had to be treated equally, regardless of its point of origin or intended audience, and won.

As a result, Internet Service Providers (ISPs) such as Verizon can now set up what are in essence high speed lanes for prioritized traffic, according to TD Ameritrade’s John Hart, director of trader product development. “The idea is to generate additional revenue by charging businesses on the supply side of the data for access to their subscriber base,” explains Hart. An ISP could decide to block or slow access to a site’s data, which Hart worries could shift the balance of information even more toward big institutions that can afford to pay for faster service.

“This issue only affects those end-users that consume data via the Internet,” says Tom Heffernan, vice president of marketing at online broker MoneyBlock. “Banks and other institutions access data typically using direct connections, [avoiding] the Internet, so there would be relatively little impact on their businesses,”

Smaller retail customers, however, have relied on “net neutrality” to keep the flow of data available to them via the Internet. Now, the ISPs will have the right to charge either the online brokers or their clients more to get the same information. Frequent traders and high net-worth customers are likely to get the best deals from brokers because they generate more commissions and fees than their smaller counterparts. Because institutional investors deal directly with exchanges without the Internet they won’t feel the change at all.

The most likely first effect all online traders will see is a longer list of legal disclosures and disclaimers from their brokers. Heffernan points out that retail traders already agree to a long list of instances in which online brokers aren’t deemed responsible for disruptions in data speed. More disclaimers are likely so the online brokers can protect themselves.

For investors who invest in mutual funds or buy and hold stocks, the effect will be minimal because they don’t rely on real-time time data. The funds also conduct their transactions after the market has closed.

But for big, frequent traders, who are the most sought-after clients for many online brokers, the stakes will be higher. Given their need for data and speed, they will be quicker than their smaller counterparts to sign up for premium delivery in order to have meaningful real-time data like real-time options chains, that can involve thousands of pieces of data every few seconds as the information is updated. It’s not as dense as a high definition streaming video from Game of Thrones, but slowing it down slightly will have a big impact.

There will be effects on the brokers, too.

Ending net neutrality could produce more regulations for broker/dealers, including the disclosures about any deals they might make with ISPs to speed the data along the pipes.

Heffernan envisions one scenario in which a large trading firm cuts an exclusive deal with an ISP that guarantees the broker the fastest data transmission speeds. That would give the broker lots of opportunities to take business from smaller, slower firms that can’t afford the higher speeds. An inability to transmit data on a timely basis to customers would severely restrict a brokers’ ability to compete.

We’re already seeing promotions from AT&T offering businesses the opportunity to provide their customers with “sponsored data” on mobile devices. Under these deals, a retail customer can download an app and get the data, which is paid for by the app provider. That means the customer’s monthly data allotment isn’t affected. But it also raises the possibility that the data could be blocked or slowed because a sponsor isn’t footing the bill.

Consumer groups as well as the FCC are working on an appeal to the ruling, and there is still some possibility that the FCC can just classify internet services as telecommunications services, which would keep the concept of neutrality in place. FCC Chair Tom Wheeler said, in a statement, “We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.” Small investors included.

Published in Barron’s Online, January 31, 2014. 

Posted by twcarey on 02/06 at 01:23 PM
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Saturday, January 18, 2014

Where to Search for a Financial Advisor Online

Where to find the Yelp of financial services and others.

We’re going to offer you some long- and short-term ways to make additional money. First, we’ll suggest some Websites that can help you find a reliable financial advisor and then detail an innovative new pricing program for heavy traders, from TradeStation.

Barron’s speaks frequently with financial advisors, providing insights into what they think about the markets and how they manage their businesses. But what do the clients think of their advisors? A new Website, Wallethub ( lets its readers take over, allowing them to search through more than 250,000 advisors in the U.S., and provide feedback about those they’ve worked with in the past.

A search through the 40 advisors who share my zip code turned up zero reviews, but that’s not terribly surprising given the recent launch of the site. Others from around the country received reviews ranging from, “A gifted financial analyst,” to “He just wants to get his commission and does not care about the customer.” Wallethub aspires to be the Yelp of financial services, with consumer reviews of banks, credit cards, and insurance companies to complement its offering on advisors.

Another site, Nerdwallet (, lets its members pose questions directly to financial advisors; members then vote on whether the answer was helpful or not. There are links attached to each advisor’s answer that let you make contact with the ones you like. The top contributors, based on how many people found their answers helpful, are listed in the right-hand column of the Ask an Advisor page. Recent questions included whether a couple was close to being able to retire (it seemed like they were, according to an advisor) and whether to pay off $58,000 in credit-card debt by raiding a 401(k) (not a good idea, said several advisors).

Many financial planners and advisors rely on word-of-mouth to find customers, though an increasing number are turning to social media. There are also sites such as that ask a few key questions, such as what sort of services you’re looking for and the size of your current portfolio, that match you with an advisor near you. Of course, we’d suggest you check out Barron’s many annual advisor rankings, including The Top 100 (April 15, 2013). You could take the results of a query and then search Barron’s rankings, Wallethub, and NerdWallet to gather more information about a potential match.

TradeStation, a sophisticated online broker for frequent traders who like to build their own systems, recently launched an unbundled equities commission structure for high-volume users. Unbundled pricing, rather than a flat fee, allows the firm to pass the various fees and rebates from exchanges and other market centers on to their customers. For those who trade a lot, it’s possible to lower costs by choosing the appropriate venue.

“Each exchange or market center charges different fees and awards rebates based on how a trader’s order interacts with the markets,” explains CEO Solomon Sredni. As a result, the trader will reap the benefit of any rebates or other discounts offered and thereby lower their trading costs. It will “give clients the ability to route their orders to the exchange or market center offering pricing that best suits their trading style and objectives,” he says.

For example, a client who trades 5 million shares per month could place a limit order to buy 10,000 shares of Microsoft (ticker: MSFT) that will add liquidity to the marketplace. She selects BATS as the destination to route the order and receives a rebate of $25 for adding liquidity. TradeStation’s commission is $20, based on her trading activity, and the clearing fee is $2. So this customer will see a $3 rebate when all is said and done. If the customer had selected flat-fee pricing, she would have paid $4.99 for this transaction.

Taking advantage of unbundled pricing requires study of the fees charged by the exchanges and market centers, as well as an understanding of when one is adding or removing liquidity. If you’re willing to do the work, you can reap the rewards.

Published in Barron’s Online, January 11, 2014. 

Posted by twcarey on 01/18 at 03:58 PM
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