Practicalities of Option trading in the UK

[Chugger]

Hello all,

I have been reading through most of the posts in the option forum and have found them very informative, with a wealth of information and help available. however, I have some specific questions that i would like to have some opinions on.

As an introduction I am currently based in Sydney and have been full time trading options on the Australian Stock exchange for the last couple of years, mainly a mix of covered calls and straight call / put trading (some straddles/strangles) depending on the market. I use TA to identify trends on probably 10 of the larger and more traded equities. We use American style options and there is a reasonable amount of Open interest and volume on monthly series.

I am possibly coming back to the UK for a few months this summer and will continue to trade the ASX (6-7am) but am interested in also trading the FTSE equities, however, the impression i get from this board is that the UK options market is fairly restrictive and most derivative play is on CFD, warrants and futures. I am interested to hear opinions on this and if it is worth dealing the UK market or maybe to concentate my efforts on the US market.

I would also like to hear about the practical set up that you are using, in particular, i have learnt the hard way that a good broker with small fees is the key to turning a profit on a reasonable percentage of trades (coupled with choosing options with good OI keeping away from the market makers as much as possible). any recommendations? I also currently leverage on my buy/writes, who will do this in the UK?
any advice on the most tax efficient way of structuring your income for trading?. I was PAYE in the UK when i left 7 years ago so have never filed a UK tax return as there is a reciprical arrangement I will still file an AUS return (50% tax here) - what about US trades? do you pay tax there and its exempt from UK tax?

lots of questions I know but i would rather get as much done before i arrive so that I am not mucking around with applications etc when there is trading to be done.


thanks in advance,

Tricky

 

[RogerM]

Chugger - welcome back to the UK. Why on earth do you want to return here from Sydney!?

There is very little around to beat Interactive Brokers on commissions. £1.70 per contract per side for UK option contracts. Phone backup is poor tho'. Or you could use ODL securities.

http://www.odlsecurities.com/index2.htm

They are not cheap, but you get MyBroker for free when you place at least one order on-line each month. Option commissions are a flat £15 regardless of size for orders placed online, and £45 for orders placed over the phone. This is clearly expensive if you are just doing single contracts, but not so bad if you are dealing in size. Also i find if you are placing a strategy (say a strangle or a ratio spread) they will very often get you a better price for the strategy than the basic individual contract prices - sometimes by 2 - 3 points which more than covers the commissions if you are dealing in size. Phone backup is good and they are invariably helpful.

There are only about 76 optionable stocks in the UK so you may want to look at the US instead, in which case IB is definitely a better bet than ODL.

As for the tax - not sure how you will be dealt with if you are not UK domiciled but you are trading in the US whilst in the UK!

 

[Chugger]

RogerM,

thanks for the quick response.

We are coming back to spend a few months in the English summer - one of the things that i do miss about living in England (the pubs being the other main thing, oh yes, family should also be included in the list), also think the kids should learn to speak proper guv There are definitely advantages to living in Sydney but we are also coming up to an election and i cannot stand the way politics is 'done' here, they really have no shame when it comes to greasing the voters palms. That is probably why the tax system here is so complicated.

I have just looked at IB and will arrange an account. I have also looked at ODL and am amazed at the cost especially the advisory charges! I cannot see on the fee PDF where it says 15 STG, all i can see is a min 2.5% (incl in and out) for the first 5k. am i missing something? although may be worth doing one a month just for the mybroker info. Is there any other stock/option quote feed available? I want to avoid signing up for a year account if i will only be trading for a few months.

I am leaning towards UK trading BHP & RIO who I also trade here (maybe a couple of banks as well) and then US trading other stocks, should be complicated enough for me.

Apologies for the lengthy questioning but i might as well be as prepared as possible before re-distributing all my wealth back to all you other option traders :cheesy:


Chugger

 

[RogerM]

The advisory services are very expensive - I suspect because of the draconian nature of the costs of (so-called) investor protection in the UK. I use ODL for UK Options because I find their service and costs for reasonable size acceptable, particularly when putting on a strategy. But their costs for other contracts are not competitive IMHO.

I am leaning towards UK trading BHP & RIO who I also trade here (maybe a couple of banks as well) and then US trading other stocks, should be complicated enough for me.

In practise if all you need are a few blue-chip UK optionable stocks plus the US, IB maybe all you need, and you won't get much cheaper, provided you don't need any hand-holding. Just make sure that you enter stops into the market as the telephone backup is very slow, and I suspect in a crisis and fast moving market almost non-existent. Many T2W traders use IB so there is always help on hand if you get stuck.

If you are looking for decent eod charts for the US, you can't get better than TC2000 in my opinion. A steal at USD$29.75 per month.

http://www.stockfinder.com/tc2000/default.asp?R=

As for corrupt politicians - if you've been away for 7 years I think you will be amazed at how overtly corrupt and self serving politicians have become here in the UK. Who was it said that "politicians are like baboons! The further up the greasy pole they climb, the more unsavoury the parts that come into view".