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So many options: OptionsPlay looks to make better trades

Jim Kharouf Jim Kharouf - John Lothian News President & Editor-in-Chief

Mark Engelhardt is like many entrepreneurs – he looked for something to help him out and couldn’t find the tool he wanted. So he built it himself.

The CEO and founder of OptionsPlay, Engelhardt wanted to find a tool that can help traders pick the right strike prices on options, a practice which is sometimes difficult and often ignored by retail traders.

“It came from a real need,” said Engelhardt, a long-time options trader. “I went to every broker site out there and none of them gave me what I was looking for – comparing trading strategies side by side. Then I added on the technical analysis, which many times is very complex, which do provide indicators on what to do and when to do it.”

So Engelhardt built a visual program or “interpretive” view of the market, that tells traders about comparative strategies and allows for buying and selling all on one screen. He initially started with a massive spreadsheet to help him follow and trade the options markets and showed others his idea. Several liked it so much, they invested in Engelhardt’s concept and OptionsPlay was launched in January 2013.

Now 18 months into the business, Engelhardt has rolled out the product to a couple of brokers in the United States and has a strategy to reach options traders in China’s budding options markets.

“It’s for people who own stock and maybe have had some success in writing calls against it,” Engelhardt said. “Picking the strike and picking the expiration are difficult things to do if you don’t have some of the tools that we provide.”

Many retail traders often find that selling calls is attractive simply for the premiums they provide. But for many individuals, premium selling can be tough and bite hard in market events, especially if they are not selecting proper strike prices in the first place.

“If you ask many call sellers or covered call buyers, “How did the program work for you?” And they’ll say “It worked until it didn’t,’” Engelhardt said. “And that’s because they are picking strikes because they like the premium, as opposed to using good solid volatility information to show you the standard deviations and where the appropriate strikes are.”

Engelhardt hopes many of those traders will transition into call buyers and employ vertical strategies, rather than just a covered call position.

Engelhardt sees tremendous potential for the product in China, where equity options are about to be launched on the Shanghai Exchange. Restrictive policies, which essentially limit options trading to qualified investors, may be lifted in the coming months to a much larger retail audience.

The next product from OptionsPlay is a portfolio manager version, which is due out in July.

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About Author

Kharouf is CEO of John J. Lothian & Co. and editor-in-chief of John Lothian News (JLN). He edits the John Lothian Newsletter, MarketsWiki and MarketsReformWiki.