Are Canadian TMX Options suitable for trading?

by Avrex on September 20, 2012

Thus far, I have only traded options on the US markets.

I was recently wondering, if there were suitable option candidates on our Canadian TMX exchange. By suitable, I refer to the option of a security having enough volume to keep the bid-ask spread reasonable.

Earlier this year, I grabbed a snapshot of the TMX option action, to analyze the possibilities.

Suitability criteria

I decided that I would only be interested in a security, if it traded over 500 contracts in a day. By my definition, this demonstrates a reasonable level of liquidity. Hence, I should be able to find a strike price that I can trade on a particular day.

In total, there are around 240 securities on the TMX that offer options.
Of those, only 38 securities traded over 500 contracts on that day.

Better US options

Of the 38 securities, I discovered that 10 of those securities, actually provided more liquidity/volume, if you went to the US markets instead. Therefore, if holding US currency in your portfolio isn’t an issue for you, go to the US market instead.

Here’s a list of those 10, and their interlisted US ticker symbols.

Possible Canadian Option candidates

Finally, here are the remaining 28 securities, that in my opinion, are possible option candidates for trading on our Canadian TMX exchange.

Conclusion

For each candidate above, on the day of the trade, you’d need to drill down to a specific strike price to see if the volume and bid-ask spreads warrant a possible trading position. Good hunting.

A side note on ETF options

In the above analysis, I’ve only discussed individual companies. As far as ETFs are concerned, XIU is the only product, with the necessary volume, to be a candidate for options trading. In my opinion, other Canadian ETFs, just don’t have enough volume to warrant a possible option trade.

The above analysis was originally posted by myself in the Options thread of the Canadian Money Forum

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