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ASX and Market Makers’ top tips when trading on-screen

March 24, 2021

ASX and Market Makers’ top tips when trading on-screen

There is over 40,000 different options on the Australian options market which makes it very unlikely that a buyer and seller will meet naturally.

There is over 40,000 different options on the Australian options market which makes it very unlikely that a buyer and seller will meet naturally.

That is why the ASX contracts Market Makers to create liquidity. Market Makers are obligated to respond to requests in the market. In return they have the opportunity to make money and receive rebates from the ASX.

According to Graham O’Brien, Senior Manager of Equity Derivatives at the ASX, it’s important for traders to understand how Market Makers operate so they can get the most out of their own trading.

Speaking alongside Market Maker Robert Risk at the Trading 360 summit, Mr O’Brien said, “Market Makers ensure that you can not only get into trades but also get out of trades as well.”’

An important aspect of the relationship between Market Maker and trader is that they can both win on a trade. 

While Market Makers are always looking to trade positions regularly, traders may choose to close the position for a profit before expiration. Or they may choose to sell another strike against the existing position, locking in some of their gains, creating a win-win situation for both parties.

Options can take several months to expire. Unlike other products traders continue to have an opportunity to gain exposure until that expiration date.

Graham O’Brien recently joined Reach Markets’ Trading 360 Summit, along with Market Maker Robert Risk from Susquehanna, to share their insights on popular trading strategies, how traders can better understand factors that impact options pricing, and what actions they can take to improve the fills they are getting on their options trades. 

The trick is for investors to understand how Market Makers operate to use that to their advantage. Mr O’Brien and Mr Risk shared the following four tips that they believe are useful when trading on screen.

Trading on market open and close can be volatile

According to Mr O’Brien and Mr Risk it can be tricky to trade around market open and closing times. 

“Markets on open can be quite volatile. Markets on close, you’re busy trying to get a flat book at the end of the day, Mr. O’Brien said. 

Robert Risk points out that Market Makers often don’t quote till twenty minutes after the market opens.

“Typically that is when the market has kind of settled down a bit,’ he said.

“Around the open you don’t really know how the stock is going to open for the first ten minutes.”

Ask a quote request prior to entering an order

Many Options Series are continuously being quoted by Market Makers, but for many Options Series that is not the case.

Market Makers are obligated to quote certain widths in the market but they can’t quote every single strike, except if they get a quote request. So it can be a good idea to ask for a quote before ordering, to get the best possible price at the time, according to Mr. Risk.   

Be careful about finessing an order in a fast moving stock

Options can move very quickly so Mr. O’Brien’s advice is to not spend too much time finessing an order in a fast moving stock.

It’s a mistake many traders make. They see a spread on the screen and think they will start in the middle, but all of a sudden the stock has moved.

If an investor has a conviction about an order, it doesn’t matter exactly how much they pay; the real return is their trading idea. By finessing too much they can end up missing their trade.

If trading combinations, TMCs are your friend

When trading combinations, TMCs can help improve the risk profile of what the trader is trading against. 

“Whenever you’re trading more than one option, I would always try to do it as a combination,” Mr O’Brien said.

This article summarises some of the information Graham O’Brien and Robert Risk shared during last week’s  ‘The Trading 360 Summit.’

You can watch a full recording below, or you can click here to book into our final session on the 31st March. Wrapping up the March 2021 Trading 360 Summit, Ivan Tchourilov from one of the busiest option trade desks in Australia, will be showcasing the most successful strategies seen in the ASX Options Game, and our panel of professionals will be answering any questions from the floor.

 

The Trading 360 Summit –Winning Formulas For Success

Date: Wednesday, 31st March
Time: 7pm AEDT
Format: Online, 60 minute presentation + Q&A

This is a free event. Click here to book your spot.

 

 

Past performance is not a reliable indicator of future performance. 

Trading options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only trade if you are confident that you fully understand what you are doing. If you are thinking about acquiring a financial product, you should consult our Financial Services Guide (FSG) at www.reachmarkets.com.au first. 

 


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