NYC Again

As I prepare for another visit to New York City, but this time ending in Chicago, I turn to thoughts of the US again. A third of US online traders trade in options as well as stocks according to a survey by TheStreet.com. Will online options trading in the UK inevitably have the same growth as online share trading? Is online options trading the next big e-trading activity private investors should be considering?

No. I am fed up with UK equity options trading. I emigrated my equity options trading to US stocks entirely - it makes more sense in terms of returns, commissions savings, choice of securities, ease of market access, other hidden costs, quality options web-sites, and even free educational material.

It is across the Atlantic the UK private investor should look if they are already trading options or considering it.

The mechanics of options are quite complicated but could be simply stated as call options rise in value and put options fall in value if the underlying share price rises, all other things being equal. The reverse is true if the price falls. Options prices are provided in this paper on weekdays and in full on the very useful and educational www.liffe.com.

Whilst there are sophisticated uses of options many online options traders will use them as leveraged instruments for relatively short-term trades lasting at most a few months.

For instance you may buy the Barclays October 1600p option currently costing 2360 pounds per options contract. That would give you the right to buy 1000 Barclays shares at 1600p each by mid-October should you wish to exercise the right. If the share price rose 10% in three weeks the option may then trade at 357p. ie. If you sold the option you would make 3570 pounds - 2360 pounds = 1210. A return of over 50% on the option on a mere 10% rise in the share price.

So why are such trades more attractive in US securities that UK ones?

Firstly there are far more optionable securities in the US than UK. There are around 90 in the UK, and many hundreds in the US. That gives me far more choice when looking for securities with the greatest probability of moves up or down. In the UK, starved of choice one has to either make second-best trades, or simply not trade for prolongued periods. Inevitably trading performance improves.

Secondly, the spread between bid-and ask prices of options place the UK trader at an instant disadvantage. In my experience there is often around a 12 per cent spread in UK options prices compared to less than 5 per cent in comparable US ones - representing an instant cost-saving, or improved performance, of 7 per cent. If you trade 5000 pounds of options weekly then that could represent over 18,000 pounds in lost profits by trading UK over US equity options.

The above two factors were critical in my decision to switch to US trading. However, there were other incidental factors. Excellent US options sites are legion making the task of research and trading US options a lot easier than UK one.

Commissions are generally comparable between UK and US brokers, however there are many more US brokers offering online options trading to choose from.

The tax situation for most UK citizens already paying capital gains tax on their trading would continue to do on their US options trading, so no complications there.

London may be a financial center for institutions, but if private investor options trading is any guide, then the internet and access to global options markets puts its leadership under threat.

Value-Growth

On my value growth criteria which are based on stocks meeting revenue and profit growth and good value based on criteria such as price earnings growth, the following names come up. Remember they are for a 6 month outlook: Lookers, Elementis, Chloride, Alexandra, Vedanta.

Remember I am targeting about 20-20% with the value growth criteria. Last year it produced 33% return. On my momentum value indicator I have: Goldshield, Oakdene, CRC, Delcam, Helphire, IFG.

Crazy Small Stock

These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include: MS International, Trust of Property Shares, Welsh Industrial.

Also, if you would like a free multi-media CDROM on 'Investing Better', which covers spreadbetting, CFD trading and momentum indicators like the MACD, posted to you then drop me an email with your postal address to alpesh@tradermind.com.

Spreadbetters

Spreadbetters and futures traders often look at hard and soft commodities. Here's my quick take on the action for the week ahead:

• Oil: Sideways
• Copper: Sideways
• Gold: Sideways to lower
• £/$: Higher
• Dow: Mixed
• FTSE 100: Mixed
• Soyabean Oil: Down