Saturday, August 15, 2009

Hardly a Lazy Summer for Brokers

ONLINE BROKERS ARE HAVING A PRODUCTIVE summer. TradeMonster (http://www.trademonster.com), optionsXpress (http://www.optionsxpress.com) and MB Trading (http://www.mbtrading.com) are the latest to introduce new features.

TradeMonster has rolled out a variety of enhancements over the past couple of months; the two most intriguing are AdjustTrade and Portfolio Analysis. AdjustTrade, based on an existing tool called SpreadMaker, allows customers to adjust positions on current stock or options holdings with a couple of mouse clicks. Portfolio Analysis offers a variety of ways to benchmark your portfolio against indexes or apply different risk measures.

The simplest example of AdjustTrade involves a long stock position. If you click on “Close-Adjust,” the feature generates a sell order. You can choose more complex methods of adjusting your position by clicking on Income, Protection, Income and Protection, or Repair. Income sets up a covered call, which sells a call option against your long stock position. Protection finds an appropriate protective put, while Income and Protection generates an option spread order that sells a call and buys a put. Repair also generates a spread; if you already have an option position, it will suggest ways to roll it out to future months.

Once AdjustTrade has made a suggestion, you can edit the exact strikes or months in the drop-down boxes and create the order. AdjustTrade can walk you through ways to correct one of your open positions without simply closing it. For those new to options trading, AdjustTrade is a tool for learning about specific strategies. For instance, if you’re looking for some short-term protection, you can click on Protection, which will suggest an appropriate strategy.

If you’ve got an open options position in your portfolio, such as an Iron Condor, AdjustTrade lets you choose among ideas such as Increase Wingspan, Decrease Wingspan, Widen Up or Widen Down. AdjustTrade can save on commissions, because you can adjust an existing combo as a strategy rather than exiting and reopening the entire position.

For example, if you want to adjust an existing four-legged options combo so that you’ve got the strike prices 13, 14, 18, and 19—but currently hold 14, 15, 17 and 18—you can close out 15 and 17 and open 13 and 19 in one trade rather than closing all four legs and opening another four legs. By placing the order the right way, you can control your trading costs. Options traders who have market-neutral positions can use this tool when the underlying stock price is moving.

Several brokers, such as thinkorswim (http://www.thinkorswim.com) and optionsXpress, have tools that allow customers to roll a spread out to a future month, but this is taking it further. TradeMonster’s AdjustTrade tool shows you where you’re starting, where you’ll end up, and the strategy you’ll execute to get there.

“It’s not a befuddlement device for a customer,” quips Skip Shean, a vice president at tradeMonster.

TradeMonster also added a row to its Position View, which is the new Portfolio Analysis feature.

You can click on the plus-sign to open it, and beta-weight your portfolio against various indexes or any symbol you want to benchmark against. Portfolio Analysis shows greeks—a measure of risk—on the portfolio level, similar to analysis you can see for individual positions.

Your portfolio’s risk profile is displayed, showing current risk at expiration and at the current date. One recently launched tweak is the ability to stress test an entire portfolio. The “What-If” box lets you test the effect on your portfolio if the benchmark you’ve chosen changes in price or volatility, or if a certain amount of time goes by. I think these are interesting tools for the options trader, both to improve the quality of one’s trades and to learn how the various strategies will work.

THE XTEND FEATURE of optionsXpress was recently mentioned in this column. Newer still is its Xtend2 platform, which is in beta test, and available to all customers at http://www.optionsxpress.com/xtend2. This new platform is written in Adobe Air, which lets an online application run on a computer independent of a Web browser. You will have to download the latest version of Adobe Air before installing Xtend2, but that only takes a couple of minutes for a high-speed connection.

CEO David Fisher says, “We wanted to find something that has streaming functionality and one-click trading and lets our customers keep in touch with what is going on in the market, but is easy to use and doesn’t take much time to set up or learn.” Xtend2 bears some similarity to software-based trading applications, in that you can personalize the desktop to your liking, but it’s a much smaller download than usual.

The available modules are shown in icons at the bottom of the screen; when you hover your mouse over an icon, the name of the tool is displayed. Drag the appropriate icon and put it on the screen, and it will stick where you put it. The standard setup shows three columns that look a lot like the tradeMonster screen, but that can be easily changed.

Fisher says that customers who have switched to Xtend2 are going for the added functionality. “We think the learning curve is much shallower, and it’s much easier to use. The customers who are using it are trading much more actively than the average customer,” he states.

Xtend2 takes a screen that looks a lot like a foreign-exchange quote screen, Trade View, and populates it with your watch list or current positions. Each box displays the NBBO (national best bid and offer) and the current lot size available at that price. If you have an existing position, it is also displayed in Trade View. Watch lists set up on the Web application can be viewed in Xtend2, and vice versa.

MB TRADING JUST announced the completion of its acquisition of Wizetrade, which is a software program that displays market moves graphically, allowing traders to make quick decisions. Executive Vice President David Lipsett says, “It has a great suite of trading tools. The products and services range from proprietary pressure indicators and customizable scanners all the way to a full-blown, high-definition TV studio. The acquisition of Wizetrade has provided our traders an additional suite of tools.”

Published in Barron’s, August 10, 2009. 

Posted by twcarey on 08/15 at 04:21 AM
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