Ian_944

Are you working on the spreadbet, cfd or sharedealing platform?

You do realise that what you are asking is that someone else take on the risk in your position? i.e. you want to take the upside, and someone else takes the loss when price gaps below your stop. If things were that easy, we'd all be millionaires.

I don't think @ArvinIG answered @StormChaser's question at all! The CBOE index referenced by Arvin is not directly tradeable on any platform, it's purely a data feed. Volatility is traded via volatility futures, either directly on the CBOE or indirectly via a platform like IG. Futures have expiry dates in the future, consequently they are each going to express a different volatility level than the index (usually higher as one goes out in time as longer time frames have greater uncertainty). In the case of IG, if you search for Volatility Index on the platform you should see the DFB plus the two near-month futures that are tradeable (Oct 21 and Nov 21 as of this note). The future products should closely track the respective CBOE VIX futures market. The Volatility Index DFB is created by IG and is interpolated from the price of the two near month futures contracts. There's an article somewhere in IG docs on how this calculation is performed; maybe check under the commodities section, but I can't recall exactly where it is. With the above said, the comment that "the prices don't match" really isn't a useful statement given that the index and each published future for VIX will all have a different level at any point in time. You need to be very clear about which two instruments you are comparing to each other. Additionally, you really need to understand futures 'roll' and the DFB calculation so that you understand the overnight holding charges you are going to incur or receive. In the case of Volatility trading, these are a significant contributor to the return that any strategy that holds a position overnight.

There's no contract size, just a bet size in pounds. Simple example: buy a call trading 5.50 for £10. It finished out of the money and is worth zero. You lose £55.

If your strategy is repeatable/algorithmic, i.e. you'll take the same type trade many times, rather than a completely discretionary strategy where each trade is a once off analysis, then understanding the long run expectation of the trade is important. To use an extreme example to demonstrate the point, say your strategy is successful only 10% of the time, i.e. 1 out of 10 trades wins. So if the size of the loss is -$1, then you need the size of a win to be at least $9 or you will lose money in the long run. In this case, taking profit early (say at $6) on a winning trade will result in a losing strategy overall unless taking profit early significantly improves your win rate from 10% to 15% of trades taken. Also look at time-based exits which close after a certain time past the signal occurring. In my experience these often product a superior profit factor than setting defined s/l or t/p levels. Time based exits assess how long past your entry signal the trade will have been exhausted and then always exist after that duration. e.g. most of the market reaction to an interest rate change might occur within x minutes/hours/days of the event, so simply closing after x will capture both a massive move and a small move. Similarly, a bounce off a support level will on average take x bars to reach resistance, so just close of x bars. Time-based exits obviously should be backed up with a catastrophic stop loss as well to defend against an extreme outcome. Finally, in my experience, stop losses in general degrade the performance of a strategy, rather than improve it. I'm not saying don't have a stop loss! What I am saying is that stop losses are a risk management tool, not a profitability management tool and most strategies will perform better (but with unacceptable risk parameters) if a stop loss isn't in place and the trade is just left to expire after a certain time period or when it hits it's t/p level. Ian

Just add the price of the legs together and multiply by the size of your bet, surely?

The "fixed premium" paid and "tracking the price of the option" are effectively one and the same thing. For example, take the example of paying £5 to buy a call option on Instrument X: If you trade on the the actual option market, you pay £5 to buy the call. If at expiry the option finishes out of the money you lose £5. If the option expires in the money, you take delivery of Instrument X which typically will have a value very close to the value of the option at the moment of expiry. If you trade a spreadbet on an option on IG, you still pay £5 to establish the position (technically you pay a bit more because IG add their margin to the price of the option). If at expiry the option finishes out of the money, you lose that £5. If the option expires in the money you are paid the value of the option at expiry but do not take delivery of Instrument X. Again the value of the option at expiry will usually be very close to the value of the delivery of Instrument X. Both on the actual market and the spreadbet market, the value of the option (and in effect your MTM PnL) will fluctuate based on movements in the price of Instrument X, volatility, theta, etc. Ian

Looking at the price history for the CME CL future which I think is the futures contract that is used by IG, between midnight and 01h45, the June contract (May expiry) moved from ~11.10 to ~11.40. Over the same period the July contract (expiry June) traded from ~18.00 to $18.41. So there was movement in the futures market, but you will have to calculate what that would have implied for the movement of the DFB spreadbet. As @Caseynotes states and you are aware, the price is an interpolation of 2 contracts. At midnight your stop was about $0.40 from the price in a market which currently has a standard deviation on hourly charts of ~$2.00, or to say it differently your stop was 3.5% from the price in a market moving 20% a day. You're going to get stopped out by simple market noise a LOT if you use stops in the above manner. Ian