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Retail Option Position Ratios

  • #1
  • First Post: May 31, 2013 5:22am May 31, 2013 5:22am
Anyone know how to interpret this for the spot cash currencies over currency options?

http://www.tradingfloor.com/tools/fx...il-positioning
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  • #2
  • May 31, 2013 6:27am May 31, 2013 6:27am
Quote
Retail position ratios shows retail trader (not OTC) positioning for each currency pair. Combined spot positions aside, traders with a view that the underlying forex spot rate will rise will tend to be long calls and short puts, traders with a view that the rate will fall will tend to be short calls and long puts. The ratio is an indicator of the overall sentiment from Saxo Bank's clients trading forex options.
Blue up, red down.
  • #3
  • Jun 4, 2013 11:52am Jun 4, 2013 11:52am
Quoting TheMaxx
{quote} Blue up, red down.
Lol as simple as it gets I guess.
THERE IS AS YET INSUFFICIENT DATA FOR A MEANINGFUL ANSWER.
  • #4
  • Jun 8, 2013 11:59am Jun 8, 2013 11:59am
Quoting TheMaxx
{quote} Blue up, red down.
I don't believe it is as simple as that as Currencey options is used as an insurance vehicle for spot cash positions by the big players, so an increase in long calls or short puts should be an inverse relationship with spot positions.
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  • #5
  • Jun 11, 2013 1:10am Jun 11, 2013 1:10am
Quoting Pipanator
{quote} I don't believe it is as simple as that as Currencey options is used as an insurance vehicle for spot cash positions by the big players, so an increase in long calls or short puts should be an inverse relationship with spot positions.
1. The only people who use options as "insurance" are the importers/exporters or non-financial types who have underlying spot exposures. The "big players" actually TRADE options as asset classes of their own and with values of their own i.e. they actually buy options cheap and hope to sell them at higher prices etc.

2. Knowing if there's an increase (or decrease) in long calls and short puts alone (for example) is not particularly useful if you don't know (among many, many other things):

  1. the tenor of the live (unexpired) options contracts,
  2. the contract size,
  3. the vol surface (a 3D graph which illustrates how the market values options on a whole range of strike prices relative to spot and relative to today),
  4. the motivations of the options players when they go into the spot market for their portfolio hedging activities,
  5. etc etc etc.


3. The link you gave in your first post only gives a snapshot of the open positions of Saxo Bank's customers (only), who are not necessarily representative of the market as a whole. It's just information that's nice to know, but rather pointless on its own.

I'm not trying to convince anyone. I'm not in the "convincing" business.
  • #6
  • Jun 14, 2013 1:15pm Jun 14, 2013 1:15pm
Interesting Skenobi,

I didn't know large firms traded options exclusivley as an asset class I doubt that as I have read n heard that the whole idea of an option instrument is designed as an insurance agent against spot cash postion to offset losses.

I understand this is only 1 provider however its better than nothing.
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  • #7
  • Jun 15, 2013 2:23pm Jun 15, 2013 2:23pm
Quoting Pipanator
Interesting Skenobi, I didn't know large firms traded options exclusivley as an asset class I doubt that as I have read n heard that the whole idea of an option instrument is designed as an insurance agent against spot cash postion to offset losses. I understand this is only 1 provider however its better than nothing.
1. You're free to "doubt" whatever I've said.

2. My qualifications for commenting, however: I've traded spot FX for top-tier Banks in my country for 16 years. For 5 of those years, I've traded FX options against other Banks and also manufactured FX derivative hedges for those aforementioned importer/exporter and other non-financial customers. You're free to doubt that as well.

3. The textbook concept of options being used as an "insurance" against losses is JUST a idea that we interbank sharks sell to gullible customers at exorbitant margins i.e. it's how Banks make money.

4. Please don't take this the wrong way. As a former institutional FX options trader, I think I'm qualified to correct the misconception that knowing the percentage of retail traders (from just ONE broker) who are long calls (and short puts) is in any way useful.
I'm not trying to convince anyone. I'm not in the "convincing" business.
  • #8
  • Jun 15, 2013 3:37pm Jun 15, 2013 3:37pm
@skenobi, I have a few questions for you if you don't mind, it's rare to find people experienced in options around here.

1. I've read that most people buy options, and very few sell them. Because of this, supposedly the banks (market makers) are pretty much always short volatility and forced to delta-hedge. Is this true?

2. In your experience, which moves first, the spot market or the vols? From my observations, in general after a quiet period first the spot moves, and only then the vols go up. But I haven't watched this very closely.

3. From my reading, it doesn't make sense to trade options if you have a directional bias on the spot. In that case you should just trade the spot. Do you agree? Did you used to trade options as "retail" does (meaning buying PUT when having a bearish spot view, instead of an bullish implied vol view)?
  • #9
  • Jun 15, 2013 4:40pm Jun 15, 2013 4:40pm
Quoting Adal
1. I've read that most people buy options, and very few sell them. Because of this, supposedly the banks (market makers) are pretty much always short volatility and forced to delta-hedge. Is this true?
Sophisticated non-financial customers don't mind paying premiums to buy options, but most customers I know prefer to RECEIVE premium i.e. sell options. Usually Banks will be long vol (long gamma and long vega) from these simple customers and therefore are very happy to delta hedge as it just means more money for the Banks. Don't forget that the Banks already buy options from and sell options to customers at good margins.

Quoting Adal
2. In your experience, which moves first, the spot market or the vols?
Vols are just numbers predicting FUTURE volatility. Volatility does not imply directional bias in spot. One doesn't necessarily have anything to do with the other i.e. spot does not lead vols and vice versa.

Quoting Adal
3. From my reading, it doesn't make sense to trade options if you have a directional bias on the spot. In that case you should just trade the spot. Do you agree?
Yes.

Quoting Adal
Did you used to trade options as "retail" does (meaning buying PUT when having a bearish spot view, instead of an bullish implied vol view)?
The only time pros trade in simple calls and puts for directional purposes is in some combinations of options such as risk reversals (look it up). Most times we trade volatility i.e. buy or sell straddles.
I'm not trying to convince anyone. I'm not in the "convincing" business.
  • #10
  • Jun 15, 2013 5:23pm Jun 15, 2013 5:23pm
Quoting skenobi
Vols are just numbers predicting FUTURE volatility. Volatility does not imply directional bias in spot. One doesn't necessarily have anything to do with the other i.e. spot does not lead vols and vice versa.
I know, I was referring to something else.

I don't know how much you've followed EUR/CHF in the last two years. I've been collecting implied vols from Saxo Bank (http://storage.saxobank.com/fx-optio...ytics/otc.html) and built an implied volatility term structure graph (not a vol surf since it has a single delta - just ATM):

https://dl.dropboxusercontent.com/u/...vol_term_4.png

If you look at the front of the term structure, you can see that from time to time, implied vols shoot up. What I noticed is that they shoot up at the same time with realized spot vols.

In a way, this sound logical, otherwise you could arbitrage between realized and implied.

This is what I was wondering, if you ever saw implied vols shoot up, but spot remaining quiet. I think I've seen this a few times in the stock market, around known events (scheduled news), but never in EUR/CHF.
  • #11
  • Last Post: Jun 16, 2013 9:30pm Jun 16, 2013 9:30pm
Quoting Adal
I know, I was referring to something else.
I don't know how much you've followed EUR/CHF in the last two years. I've been collecting implied vols from Saxo Bank (http://storage.saxobank.com/fx-optio...ytics/otc.html) and built an implied volatility term structure graph (not a vol surf since it has a single delta - just ATM):
Quoting Adal
If you look at the front of the term structure, you can see that from time to time, implied vols shoot up. What I noticed is that they shoot up at the same time with realized spot vols.
Coincidence. Possibly just sentiment from spot carrying over into the options market or vice versa. Not to be relied upon all the time if you don't know or understand the motivations of the bigger options players.

Quoting Adal
In a way, this sound logical, otherwise you could arbitrage between realized and implied.
To me, it's only called "arbitrage" after the fact. When you see realized vol and implied vol shoot up at the same time, I'm not sure if you realized that TODAY's realized volatility measured volatility from a some point in the PAST up to the PRESENT, whereas TODAY's implied vol quote measures the market's PREDICTION of volatility from TODAY to some point in the FUTURE. So you're not even comparing apples with another apple derivative in the same timeline.

So when you see 1 WEEK (for example) realized vol jump TODAY, you need to check what exactly was implied vol quoted in the market 1 WEEK AGO and then compare.

If you were long vol via straddles 1 week ago and "realized vol" went up TODAY over and above the PREDICTION one week ago, good for you and I hope you've delta-hedged enough times to make more money.
I'm not trying to convince anyone. I'm not in the "convincing" business.
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