IG Options Trading Review

Options trading on IG, just got a little tastier

I had a great time testing IG’s new TastyTrade options trading platform. I’ve always loved options trading, but is it really for UK traders? can we grasp the Americanness of them? Or should we stick to good old financial spread betting and CFDs to hedge? Read on to see if I made any money and what IG options trading is all about.

IG is betting big on options at the moment, particularly after their acquisition of TastyTrade in the US. IG even took over the advertising spots on The Drain (the Waterloo & City Tube Line) that ushers finance types to the square mile every morning, with the hope, I assume of enticing sophisticated traders to take a position on the US election.

Side note – when I took The Drain the following week, it was a different advertiser, which was a shame because I happen to know that if no one is booked in after your slot, the Underground will just let you leave your ads up there – potentially doubling or even tripling your return on investment.

I’m not going to go on an advertising rant here, but when I flicked on Margin Call the other night on Amazon Prime, I got probably one of the most highly targets ads I’ve seen. I’d been researching options, and IG, and was also about to watch a film about the dangers of highly leveraged positions – so what advert came on before hand? That’s right – IG’s new option trading offering…

But is options trading on IG any good?

Well, in the past, if you wanted to trade options with IG, you could do so as a spread bet or a CFD, on major indices currencies or commodities (and some US stocks). This was good because if you wanted to hedge your portfolio, you could buy a put as a financial spread bet, and if the FTSE took a tumble, you wouldn’t have to pay tax on your options spread bet profits, or CGT from liquidating any long-term holdings.

But now, IG options trading has got a little tastier, as they say in EC, you can now access the mightly TastyTrade options platform through your IG account. Until recently, you had to sign up directly with TastyTrade in the US, but you can’t do that anymore because of the FCA & SEC, which is actually fine because it’s an absolute nightmare funding a US account from the UK. It takes ages. Even in the world of instant bank transfers, it can still take days before your deposit is eligible for trading. But now as TastyTrade sits in your IG dashboard alongside your spread betting, CFD, GIA, ISA and SIPP account when you deposit funds via debit card, they are available immediately.

If you don’t know what TastyTrade is and how important it is for options trading just check out Tom Sosnoff on Youtube. What started out as essentially an educational social media channel about options trading that ushered customers onto a white label soon became a stand-alone platform and was then acquired by IG for over $ 1 billion.

Now, I like options trading. I’m a natural bear, so if I think the market is going to tank, I’d rather buy a put, that short sell an index as your risk is limted to the premium you pay, which means I can sleep at night. I’ve been an options broker back in the days when customers would phone through the individual legs of a spread and you’d have to get on the phone to a market maker to do they deal – trying you best not to get it the wrong way round. Which I often would, ensuing much hilarity as I tried to trade out of the errors.

But thankfully, options trading is much easier these days.

TastyTrade is an epic platform and far too big for me to explore on my own, so after interviewing Matt Brief, the head of IG UK about why they are bringing options to Blighty, I spent a good hour or so going through the platform with Hannes Bruwer. Hannes found his niche as an options sales trader at IG after joining their graduate program following his Masters in economics.

Niche here is I think the right word. Becuase in America everyone loves options because for some reason they understand them. Maybe because they don’t have CFDs and financial spread betting. But in the UK, options trading is a not all that popular, and that’s something that may change with the introduction of TastyTrade and all the educational content that comes with it. Because for some reason, everyone wants to be like Mike, or maybe now Tom…

But anyway, What does Tastytrade do? Well, three things: it lets you trade US stocks, futures and options – yes, you could do this with IG before, but this is a whole other level.

The platform will automatically build options strategies like Vertical, Strangle, Straddle, Butterly and Ratio spreads etc. So if for example you expect the Tesla share price to move because you think that Elon Musk is about to go bonkers on Twitter/X again – but are not sure in which direction, you can use Straddle to buy both a put and a call simultaneously. Or you can execute a short straddle if you think that Musk has become a boring old man and the Tesla share price is due a dull period as there are no earnings out for a while.

It gives you an excellent representation through the advanced tab’s bull/bear visuals where you can see your max profit and loss. There is also a quick analysis tab that calculates probability. You can also see how you have done on every asset you have traded since you opened your account – which comes in quite handy as being able to see your individual P&L may guide you towards stocks or indices you do well at and hopefully help you avoid currencies where you constantly lose money.

Mainly though, people trade SPX, SPY, top stocks, covered calls, and long options to take positions, but interesting, apparently the most successful traders are those that short options accumulating premium. But stop losses aside, naked options selling can potentially mean unlimited losses, so you really need to know what you are doing for that.

If you are just interested in covered calls, which are one of the most popular options strategies on the platform where you sell calls against a stock you own, the platform automatically recognises that you hold the stock on account and adjusts your margin to free up as much buying power as possible. IG has always been good at collateral as you can use stock for margin trading with a normal IG account, but you need a professional account and special permission from the risk department for that.

On the downside, there is no strategy builder where you can decide where you think the market is going to go, where the system will work out which strategy is most appropriate like Interactive Brokers does with Capitalise.ai.

But, and I cannot stress this enough, this is where IG stands out, if you don’t know what you are doing, you can phone IG up and ask and someone will talk you through your trades over the phone, or even do them with or for you.  You can have all the best tech in the world, but if you can’t get a hold of someone when you need to, it doesn’t matter.

If you’re starting small, IG has micro lots, and cash-settled options on indices, and if you add the $ sign before a code, it will show you the continuation chart of a future, rather than the quarterly charts, which makes historic performance easier to understand.

Or if you like the quarterly contracts, you can trade one futures month against another, which is futures spread trading, as opposed to financial spread betting, if you’re looking for allusive arbitrage opportunities or like a punt on divergence.

If you’re executing “lots”, commission is capped at $10 per strategy, otherwise it’s $1 a contract, which is relatively expensive for small trades, but good for bigger ones. It’s a lower margin (for want of a better word) product for IG, but they say they are intent on offering a full suit of products with the aim of being able to cater for every sort of investor and trader.

There are no options on UK stocks, unless they have an ADR like Lloyds, so you can hedge your bigger UK longer-term equity holdings. Charting is drag and drop; you can backtest a range of strategies and ideas without risking real money.

Overall, TastyTrade’s options platform is an excellent addition to IG’s account range, giving traders greater flexibility and options…

I had a little play about and put some trades on after the demo with Hannes as it’s always nice to have a punt on the market in a relatively limited-risk way. And by that, I mean long options and if I lose money, marking it through the business as part of the research and development budget.

You have to go through a little bit of KYC and answer a quiz about options to get your account activated and do the aweful Onfido ID verification process, which means getting up and going to look for your drivers licence or passport. But it, literally only takes 5 minutes. Especially if you copy and paste the suitability questions into ChatGPT because you’re in a hurry and becuase, that is simply how every exam, question or anything that requires a bit of effort will be done from now on.

For the test trades, going back to my earlier point, I personally think that Tesla can go bananas at the founder’s whim so I bought a straddle that basically meant that if the price moved by more than $3.20 in either direction by the end of the day I’d make money. A fair bet, seeing as Tesla, can move between 2-3% or $5.50 on average for no apparent reason.

But typically, it didn’t. Musk must be planning another ludicrous update – so I lost $185 on that trade. I was keeping an eye on it all day via the app, which is much easier to use than the desktop version (as all apps are). I closed the position out before the end of the say as I just don;t need the hassle of being assigned. Although IG say they can walk you through your options if that does happen.

My mate, Darren reckoned that Southwest Airline, Norwegian Cruise Line and WYNN Resorts looked good in the short term. Now, as I personally think that the Wynn has the best poker room in Vegas and despite sitting down with pocket rockets earlier this year they still have some of my rake. I’d like a bit of it back, so went long and bought some November 120 calls. That gives them a few weeks to break out above last year’s highs.

Jackson is quite rightly bearish on Aston Martin and whilst I think there is money to be made by owning a classic DB6, two clear-cut depreciating assets are a new Aston Martin or AML shares. So I was going to buy some puts to see if they have another profit warning, as they say they come in threes. But can’t becasue even though they have an ADR, it’s not on the platform.

But if there is one thing you can rely on, it is the unreliability of British car marques, so I picked on Lotus (LOT) instead, who have done terribly since their IPO, as we expected. But, as I can’t trade options on those either I’ve had to reduce myself to the indignity of shorting the stock as a vanilla margin trade. LOT US is hard to borrow too, so the sort interest is going to be high (75% a year) so it definitely won’t be a long-term position.

Ed, is bullish Uber in the medium term, and I personally think that if there was ever a consumer case for monopolies, Uber would be it. It has made my life immeasurably easier and cheaper over the years, so I’ll “ride” that wave and hopefully “share” in their profits. They’ve come off a little bit, but overall I think bullish, I bought some November 90 calls, hoping the rally will continue. Maybe a potential hedge against the Lotus short as it is slightly car related.

Fingers crossed…