We expect Facebook IPO to price tonight and the shares are anticipated to begin public trading Friday May 18,2012.

We expect Facebook shares to begin trading as a listed company tomorrow morning sometime after the opening of the regular market.  Here are a couple of quick bullet points of what to expect.

• The symbol is FB.
• The primary listing exchange is the Nasdaq Exchange (“Nasdaq”).
• FINRA does not allow member firms to accept market orders for IPO’s prior to the issue commencing trading in the secondary public market.
• Currently the Facebook IPO price range is $34-$38.  OptionsHouse is not an underwriter and does not have Facebook shares available at the IPO price.
• If entering orders for Facebook, we strongly recommend using limit orders all day as Facebook shares are expected to have extreme price volatility especially on the first day.
• Customers will be able to enter Facebook orders after the market close today which will have a pending status until the order is accepted by our vendor we expect this tomorrow morning.
• Before the IPO is released for trading on the Nasdaq exchange:

The Facebook shares will enter a quote-only period for approximately 15 minutes

• THE SHARES WILL SHOW A BID QUOTE AND ASK QUOTE DURING THIS TIME HOWEVER THE SHARES WILL NOT BE OPEN AND AVAILABLE FOR PURCHASE AT THE QUOTED PRICES.
• Think of this as an opening rotation allowing time for the market to determine the first traded “PUBLIC” price
• Again expect extreme price volatility during the first day of trading and we recommend using limit orders.

The Quote only period can be extended by Nasdaq due to excessive quote price volatility.

The IPO is expected to be released for trading at a time determined by the Nasdaq.

REMEMBER:  No market orders will be accepted in Facebook before the shares are trading publically.

Consolidated 1099 Tax Forms are now available in both OptionsHouse platforms. To access your 1099 forms, follow these instructions:

New OptionsHouse Platform:

-          Launch the “Manage accounts” tab

-          Select “Tax Information”

-          Select “Tax Forms”

Standard OptionsHouse Platform:

-          Click the “Manage Accounts” button in upper-right corner

-          Click on the “Manage Account Preferences” link

-          In the Manage Accounts pane, select the “Tax Forms” Tab

For more information about how toaccess your Form 1099 online, please view our FAQs.

We recently launched all new OptionsHouse mobile apps for the iPad^{® 2}, Android™ ³ tablets and the Kindle Fire. We thought they were great. Turns out, Barron’s thinks they are the best. In the 2012 Barron’s annual review of online brokers⁴, our mobile apps earned the top ranking in the Mobile category.

At OptionsHouse, we believe the best brokers should keep you connected to the market no matter where you are. That’s why we are committed to mobile technology and why we’ve recently released all-new mobile apps for iPad, Android Tablet and Kindle Fire.

OptionsHouse iPad^®—A More Powerful, More Intuitive Mobile Experience
Fans of the iPad will see the OptionsHouse app takes full advantage of the iPad technology. With iPad’s big canvas, we’ve maximized the amount of viewable information for Positions, Orders, and Watchlists. Charts are bigger and our entirely new option chain for iOS users allows you to see more than ever before. Check out the app today on the iTunes^® Store and tell us what you think.

Android™ & Kindle Fire—Your New Favorite Trading App
OptionsHouse also rolled out new apps for Android Tablets and Kindle Fire. Users of our original OptionsHouse app for Android will see that we’ve done a great deal with the larger real estate. You get more information and there’s fewer taps to navigate between tasks. With a full option chain, multi-pane views, and recent quote history, there’s a lot ways these apps can help you monitor and trade on the go. Check out our apps on the Google Play or Amazon and let us know what you think.

Almost by definition, if you are investing in the stock market, you are taking on risk. Investors accept some amount of risk in order to realize expected returns above that of the prevailing risk- free rate. It’s a fundamental reality of investing, but it is easy to forget there is no such thing as a free lunch. If you want higher returns than you get from the Treasury rate, you have to give up some of the relative certainty that risk-free investments afford you.

There are libraries filled with books and studies of risk versus return. They speak volumes on the efficient frontier of the risk/return trade-off; Sharpe ratios that quantify excess returns vs. risk taken; benefits of diversification in risk reduction – to name but a few. The idea of taking risk in a measured way to gain extra return is a bedrock investing principal. During my time on the proprietary trading side of the options business at OptionsHouse’s parent company, PEAK6, we measured risk along several key parameters: time decay, dollar deltas, exposure to volatility, and more. The absolute numbers were not very helpful unless they were given in context to the size of the portfolio the trader had. For example, paying $10,000 per night in time decay might be a dangerously large position for a junior trader because he or she probably only had a small amount of capital at his or her disposal. However, for a senior trader who was using substantially more capital, this could actually be considered a flat position.

With this in mind, we at OptionsHouse strived to create a way to proactively show you risk metrics as they relate to the size of your own portfolio. Think about it as having your own personal risk manager riding shotgun with you through your investing day. Some of the measures are very similar to the ones I used for years on the proprietary trading side of the business, while others are specifically designed with the needs of retail investors in mind. Building this was not easy. There is an enormous amount of complexity in running these calculations throughout the trading day. However, when you change your portfolio, you need to immediately see how your risk profile has also changed. These risk metrics are meant to be guides for you. We provide you with the platform and the information to help you make your own trading decisions. That said, with 40 years of trading industry experience between Steve Claussen and myself, we’ve experienced many of the situations that our customers face every day, including the ones that can get investors into positions of unacceptable risk. We urge you to use the new Risk Score functionality as an educational tool to expand your awareness and understanding of risk. You might be surprised about what you find. Please understand, however, that the use of any educational tool or investing alert should not be the sole basis of your investment decisions. Instead, please be sure to conduct your own research and individual portfolio analysis when deciding what investing action to take.

In thinking about investing or trading over a long period of time it is important to remember that you are going to be wrong sometimes. No one has a perfect track record of investments and that is ok. It is imperative that you understand how adverse events will affect your portfolio before they happen. For example, it is acceptable if you are long stock in XYZ, and a negative earnings pre-announcement causes a 20% down move in the stock. These moves can happen to the best traders. However, you should never be surprised by that move’s impact on your portfolio. When you read the headline about a negative earnings pre-announcement, you should know a) you have the affected name in your portfolio, b) you are long the affected name, so this news is bad for you, and c) a reasonable estimate of how much that loss will be in relation to your overall account. This is what we are doing with the Risk Score. We are giving you a guide to how much risk you may be subject to for potential events so you are not surprised by their impact should one or more of them occur.

How does the Risk Score work?

We have tried to provide you with a standard framework for each measure of risk that will give you a sense of how your portfolio might look through the eyes of a professional risk manager. For instance, we believe a score in any scenario of 4 is within the bounds of risk that a reasonable investor might take in a fully invested portfolio. This assessment has absolutely nothing to do with an opinion on whether or not you will make money. It’s sole purpose is to highlight risk against a specific set of criteria. As you already know, there are countless decisions and viewpoints that go into forming your investment quality outlook. That is your job, not ours.

Many of our metrics are about degrees of concentration your portfolio is exposed to, which you may or may not be aware. As our name indicates, many of them have a concentration on options-related risk. If you have a score of 0 or 2, we believe your risk is not especially high for the size of the account you have. Again, that is against our specific criteria, not all criteria. Finally, and importantly, we think scores of 6 or higher should be considered warnings that you may be overextended.

Two important things to keep in mind: 1) Stop orders you may have in the market are not currently considered within the risk metrics because you are still at risk to a gap move outside of market hours when it comes to your stop. They are good to have, and they can often get you out of positions, but they are not foolproof; 2) These measures are account-specific. You are responsible for monitoring risk for each of your accounts.

To find additional information on Specific Metrics, please visit this link.

I have traded options professionally for over 25 years. This chosen profession has been a wonderful choice for me as I can think of no other profession where every day you can answer the question, “Did you have a good day today?” with such objective clarity.

The secret to longevity in trading derivatives is very serious however. It is very simply mitigating risks and eliminating uncertainties whenever and wherever possible.

I have seen far too many retail traders do the exact opposite of this discipline with disastrous results. They are tempted to attempt to make a quick couple of bucks on expiring options rather than follow the discipline that serious professional traders carry out around expiration. Professional traders eliminate risks! I am embarrassed to say that many of our customers add additional HUGE risks for the potential reward of MERE pennies. This is insane!
At the end of last year, the SPY quarterly options expired at the end of the day on the last trading day, December 30, 2011. In the last 20 minutes of the session, traders actually sold the 126 -127 call spread for 2 cents! Typically a credit call spread is a limited risk / limited return strategy. On expiration day, the risk/reward is even worse than giving the 50 to 1 odds on a 1 dollar call spread!

This is due to the fact that the 127 calls which were purchased were really very far out of the money with so little time to go before they expired. So this is really the equivalent of selling the 126 calls naked for two cents. The seller of these options actually took “pin risk” into their portfolio for a measly 2 cents! Pin risk is the uncertainty of the exercise outcome due to the underlying closing price being very close to the short strike price position.

The SPY closed that particular session at 125.50 but the options and futures in this ETF continue to trade for 15 more minutes on the exchanges. Additionally the stock continues to trade in the post market session. During this time the SPY stock price rallied thru the 126 level all the way up to 126.20 before settling at 3:15 p.m. CT at a price of 126.05. This price action caused many of the long 126 calls to be exercised further causing assignments to the short call positions. Likewise many 126 strike puts were NOT exercised. This resulted in my customers being surprised over the long weekend with a short stock position in the SPY! The market gapped higher on the first trading day of the New Year, January 3rd , resulting in RegT margin calls and large losses in these short stock positions.

It is important to realize that during the expiration of the options this is actually no longer a short call spread but rather a resultant short stock position that has unlimited risk to a market move higher. All this risk for only a limited potential return of 2 cents!

As foolish as it is to open a spread with a maximum potential gain of only 2 cents, it is equally foolish for the traders who did not cover their short option exposure before expiration. They too were allowing all that uncertainty and risk to enter into their portfolios. This inaction, to me of not covering a short position at 2 cents is the same as shorting that position for only 2 cents!
Weekly options volume has exploded and expiration now is an every Friday occurrence. These proliferation of expirations makes every Friday a potential for disaster without proper monitoring and managing open expiring positions.

The lesson learned here is professional traders take expiration risk OFF their sheets. How? By closing down short expiring options before they have a chance to turn into a stock position that is unwanted, uncertain and unlimited in the potential loss. Remember, the long holder of options controls the decision around exercising. Short option holders have only obligations to buy or sell stock and are at the mercy of the exercise decision whims of the long holders.

With the continued march to a world of sub-20% VIX¹ readings, premiums required to purchase out-of-the-money debit spreads have continued to decline.  Couple this lower premium with the almost 6% rise in the S&P 500 Index (SPX) since the start of this new year and you may discover some compelling trading opportunities.

Whether you believe an upside breakout may be coming or you are concerned about a possible retracement in market prices, lower-cost debit spreads may be one way to limit your risk while potentially profiting through a limited-risk limited-reward strategy.

Think about it this way:  if your preferred strategy is to sell out-of-the-money SPY (SPDR S&P 500 ETF) puts as a strategy to gain neutral-to-bullish market exposure, the premium you now receive by selling put options is considerably lower than it was two months ago.² You either have to sell options with strike prices that are significantly closer to being at-the-money (ATM)³ to receive the same premium, or you have to sell options that are the same distance out-of-the-money for much lower premium.

Is it worth it?  The maximum reward for a short/sold put is limited to the premium collected upfront (while risk is unlimited down to zero).  Perhaps the strategy is still worth it for some traders, but those concerned about the risk/reward of short options might look to the lower-volatility environment for current opportunities that are present in long debit call spreads. It may make some sense, because if options are too cheap to sell, they may be a value to buy.  The risk to buying debit spreads is 100% of the premium paid, while the profit is limited to the difference in the traded options’ strike prices less this premium.

Conversely, if you don’t believe this rally, what could you do?  Well, with the market run-up and the volatility decline, there are symbols on which you can buy debit put spreads that would be in-the-money if the underlying stock retraces back to trading prices just 30 days ago on January 1, 2012.   The prices of these debit put spreads are now lower than they have been in the recent past and may once again provide compelling limited-risk, limited-return trades.

We have two useful tools to assist our traders in analyzing the possibilities:

The Trade Generator in our suite of platform tools has a debit-spread finder, which is ideal for scanning for these opportunities. You can access the Trade Generator from the latest version of the OptionsHouse platform by clicking on the Tools tab.  You can also click on any down arrow, select Tool Navigator, and get to the Trade Generator from there.

The Debit Spread tool inside of the Trade Generator (which you can select from the strategy drop-down menu)  allows you to  search by industry group, Watchlist or a single security, for debit call spreads and debit put spreads based on your selected criteria.  A comparison between historical and implied volatilities is generated and the ideas will populate based on maximum potential ROR.⁴

For example, say you think that Apple shares could retrace back toward the price the shares were trading on January 1^st, 405.00.  The Trade Generator highlights trades such as the April 12 420/415 debit put spread (going long the 420 put, shorting the 415 put) for $1.20 per spread. If AAPL is trading below $415 when the spread expires, the profit maxes out at $380.00 (before commissions).  The risk is capped at the $120.00 premium paid.   This represents a 316% return on risk on this trade.

We also have a Spread Investigator tool in our suite, which shows potentially inexpensive call and put spreads currently available in the market.  This has less qualitative screening capabilities and is intended to show lower-cost debit spreads, which oftentimes are very far out-of-the-money (OTM⁵). Be forewarned, the farther out-of-the-money the spread is positioned, the lower the probability exists that they it become profitable at expiration.

In conclusion, this is not intended to be any sort of buy or sell recommendation but is rather aimed to stimulate your thoughts around trading the volatility environment that currently exists.  When volatility levels are lower, it may make sense for long option spreads.  For more information on vertical spreads check out our webinar archive for presentations on long call spreads and bear put spreads.

We love giving customers the features and functionality they want.

And today is one of those days. We have made some changes to our Watchlist feature that will allow you to interact with your Watchlists and other “list” components (Sector Monitor, Index Monitor, and Hotlist) in a different, more efficient, streamlined way.

From now on, you can trade directly from the Watchlist. Whether you’re trying to simply buy or sell stock or generate an advanced order, you can do so by simply clicking on the symbol in the Watchlist:

Not only that, you can send a quote for that symbol to the universal quote line at the top of the platform. If any components are linked to that top line (such as the option chain), then you’ll see an option chain load up for that symbol.

With these new changes, these components will have a cleaner feel that should make them easier to use.

But wait—there’s more!

We’re also bringing a new level of customization to the platform to the following components:

-          Positions

-          Orders

-          Watchlist

-          Hotlist

-          Index Monitor

-          Sector Monitor

We’re enabling a new feature that will make these components completely customizable. The new functionality includes:

-          The ability to pick from a variety of columns to display the data you want

-          Drag and drop columns where you want them

These features allow you to set up each component to show the exact data you want to see in the order you want to see it.

All you have to do is hover over the column headers and select the columns you want to see:

So if you want to see the high and low for a stock in your Watchlist, you can do that. Maybe you’d like to show the days to expiration of a position in your positions pane? You can do that too.

It’s all about exposing the information you want and hiding the rest.

Take a look at the new features, play around with them, and let us know what you think. Oh, and if you want to go back to the default column setting, you can always click on “Restore Defaults” and everything will go back to normal.

Last week we released a host of new features and general bug fixes for our Android application and we wanted to share some of them here. Click here to download the latest version or go to the market from your Android device.

Light Mode

Don’t like all the dark hues on the current app? Now you can switch to Light Mode and all that black will turn white. A lot of our users wanted this in our main trading platform, so we’ve made the change here as well. You can access Light Mode via Settings->Set UI Mode:

Tip: if you’re in the sun and need to fight glare, light mode might make it easier to see what’s going on.

Watchlist Love

We’ve added the ability to add and delete new Watchlists right from your phone. This feature didn’t make it into the debut version of the app, but now you can create brand-new Watchlists from your phone and they will automatically get carried over into the main trading platform.

System Alerts

System notifications will now show up automatically on the Home screen. This includes margin or day-trading calls, as well as other critical messages that would normally show up in red in the message center of the main trading platform.

Hints and Feedback

This new section on the home page makes it easier to send us your feedback and report issues with the app. We’ve also included a hints area that gives you some good tips on how to get the most out of the app.

One More Thing on Positions

We’ve gotten some feedback from customers wanting more information regarding their positions in the app. So we just wanted to clarify that there is an entire screen devoted to each position that’s accessible from the positions screen.

From this screen you can tap on any individual position and the position-detail screen will come up:

Here you can view things like cost basis, value change, and stock price change. You can also trade out of the position right from this screen.

As usual, we love hearing from our customers, so if you have any thoughts on how to improve the app, please let us know here in the comments. And if you love the app, don’t forget to tell the world on the Android Market.

The wait is over—we are proud to announce we have an Android app for OptionsHouse customers.

You’ll notice the app doesn’t look exactly like the iPhone app, and that’s on purpose. We built it specifically for all of our Android users instead of simply porting over our existing iPhone app.

The result? A fast-trading app that takes advantage of all the functionality and usability you’ve grown accustomed to on Android.

From the app, you’ll be able to:

-          Monitor your positions and orders

-          Trade stocks and options

-          Trade option spreads from the options chain

-          Trade out of your positions

-          View your watchlists and trade directly from them

-          View symbol fundamentals and charts

-          View charts in candlestick and OHLC formats

-          Set your trading defaults for app trading

-          Access your virtual account

Check out the app by accessing it directly from your device on the Android Marketplace. You can also send it to your phone from the Android Market website. Don’t forget to rate the app and send us your feedback.

With our Android app available, we now offer an easy, convenient way to access your OptionsHouse account regardless of the mobile device you use. If you aren’t an iPhone or Android user, you can access our mobile website at m.optionshouse.com.

Several weeks ago, we posted a blog about how to simultaneously set up a target and stop price when executing an initial stock order.  Good news – this process is now more seamless thanks to the bracketed orders feature we recently introduced.

What’s a Bracketed Order?

Less complicated than it sounds, a bracketed order simply “brackets” two prices (one stop price, one limit price) around an initial order.  That way you can choose the levels at which you want to exit a winning or a losing trade.  And when one order is activated, the other will automatically be cancelled. Continue Reading