Amazon Stock Split Is Affecting Ability To Trade Vertical Option Spreads...

[Con1991]

I hope this little fact has not gone unnoticed amongst the general trading community. I always stick with credit spreads, mostly for their ability to often fill at the mid price, as well as reduced risk of course. Therefore my preferred stocks are those priced high, such as Amazon, Google, Tesla, CMG etc. I also trade the indexes such as Spx, Ndx etc.

However, one major(huge) disadvantage to the stock split of AMZN yesterday, is that volatility for this stock is now greatly reduced. Now I find it's impossible to capture more than a few cents of movement in a spread of this stock. Whereas before, AMZN would often move a few dollars(in point terms) per day. So my spreads were capturing 5 to 10 points, with a resulting profit of 500 to 1000 dollars at times.

I understand the merits of a stock split, in terms of cheaper share prices mean more accessibility for the average trader, increased liquidity etc. However AMZN is now on a par with Apple, which I consider a low volatility, non-moving stock for option spread trading purposes. And I believe Google and Tesla are both set to follow suit shortly, which shall leave only the index options with sufficient volatility for my liking. A disaster as far as I am concerned.

Anyone else have any opinions on this situation?

 

[nooby_mcnoob]

I hope this little fact has not gone unnoticed amongst the general trading community. I always stick with credit spreads, mostly for their ability to often fill at the mid price, as well as reduced risk of course. Therefore my preferred stocks are those priced high, such as Amazon, Google, Tesla, CMG etc. I also trade the indexes such as Spx, Ndx etc.

However, one major(huge) disadvantage to the stock split of AMZN yesterday, is that volatility for this stock is now greatly reduced. Now I find it's impossible to capture more than a few cents of movement in a spread of this stock. Whereas before, AMZN would often move a few dollars(in point terms) per day. So my spreads were capturing 5 to 10 points, with a resulting profit of 500 to 1000 dollars at times.

I understand the merits of a stock split, in terms of cheaper share prices mean more accessibility for the average trader, increased liquidity etc. However AMZN is now on a par with Apple, which I consider a low volatility, non-moving stock for option spread trading purposes. And I believe Google and Tesla are both set to follow suit shortly, which shall leave only the index options with sufficient volatility for my liking. A disaster as far as I am concerned.

Anyone else have any opinions on this situation?

Your algorithm should size according to volatility, it should be a non issue (except at inflection points). But I don't trade spreads.

 

[Con1991]

Your algorithm should size according to volatility, it should be a non issue (except at inflection points). But I don't trade spreads.

When Amazon was trading at over 2000 dollars per share, it was much easier to capture heavy movement, either outright or through spreads. Now with the price trading at 123 or so per share after the split, movement is not sufficient enough to capture such volatile moves. This strategy is all but finished for those who used AMZN as an affective stock in their spread trading arsenal..

 

[Overnight]

I hope this little fact has not gone unnoticed amongst the general trading community. I always stick with credit spreads, mostly for their ability to often fill at the mid price, as well as reduced risk of course. Therefore my preferred stocks are those priced high, such as Amazon, Google, Tesla, CMG etc. I also trade the indexes such as Spx, Ndx etc.

However, one major(huge) disadvantage to the stock split of AMZN yesterday, is that volatility for this stock is now greatly reduced. Now I find it's impossible to capture more than a few cents of movement in a spread of this stock. Whereas before, AMZN would often move a few dollars(in point terms) per day. So my spreads were capturing 5 to 10 points, with a resulting profit of 500 to 1000 dollars at times.

I understand the merits of a stock split, in terms of cheaper share prices mean more accessibility for the average trader, increased liquidity etc. However AMZN is now on a par with Apple, which I consider a low volatility, non-moving stock for option spread trading purposes. And I believe Google and Tesla are both set to follow suit shortly, which shall leave only the index options with sufficient volatility for my liking. A disaster as far as I am concerned.

Anyone else have any opinions on this situation?

Could you not just increase size to make up for lower vol?

 

[Con1991]

Could you not just increase size to make up for lower vol?

Yes, absolutely. However I found it much more profitable trading lower size, and capturing larger moves. Now that Amazon has been relegated to lower price movement, it seems size may be the only saviour.

 

[Overnight]

Yes, absolutely. However I found it much more profitable trading lower size, and capturing larger moves. Now that Amazon has been relegated to lower price movement, it seems size may be the only saviour.

Well, if you have a handle on how the AMZN options move, and have been profitable with them, increasing size seems a logical course to take. But that is coming from a liner-trading type mind. I know options are more complex than that, and have other concerns such as the greeks, which increasing size may not fix due to other factors like liquidity and implied vol. I hope you can figure it out on the new, super-discounted AMZN shares.

 

[NoahA]

Your algorithm should size according to volatility, it should be a non issue (except at inflection points). But I don't trade spreads.

Off topic to this thread (sorry everyone)....

Its a shame that other thread was closed because I was looking forward to following more of your trade updates. Does a nice trend like today affect your profits or does it not really matter much since your hold times seem to be short and you're only taking advantage of the immediate trend?

(ps.... I know you DMed me again, but its still locked so I can't reply!!!)

 

[ET180]

I'm a bit confused on this. When AMZN was trading much higher at say 3000, the gamma of the ATM strikes was much lower than the gamma of the ATM strikes at 100. Stated another, equivalent way, the delta on the ATM strikes is much more sensitive to a $100 move on AMZN post-split than pre-split. So yeah, the price swings of the underlying were a lot greater pre-split, but the option prices with any kind of duration left would be far less sensitive to price swings of a given magnitude compared to now. Also, liquidity improved so it's easier to trade in and out of option positions with less slippage now compared to before. Overall, I think the $100 - $300 range is about ideal for option trading.

 

[Con1991]

I'm a bit confused on this. When AMZN was trading much higher at say 3000, the gamma of the ATM strikes was much lower than the gamma of the ATM strikes at 100. Stated another, equivalent way, the delta on the ATM strikes is much more sensitive to a $100 move on AMZN post-split than pre-split. So yeah, the price swings of the underlying were a lot greater pre-split, but the option prices with any kind of duration left would be far less sensitive to price swings of a given magnitude compared to now. Also, liquidity improved so it's easier to trade in and out of option positions with less slippage now compared to before. Overall, I think the $100 - $300 range is about ideal for option trading.

The strike intervals for AMZN since the split, are now in .5 increments, as opposed to whole number increments pre-split. In the money strikes begin at 60, whereas before they would be 700 at a minimum. I found it far more profitable trading with wider strikes on this particular stock.

 

[Overnight]

...Also, liquidity improved so it's easier to trade in and out of option positions with less slippage now compared to before. Overall, I think the $100 - $300 range is about ideal for option trading.

Well, there is this to think about...

A 100-300 range NOW imputes a pre-split movement of 2100 to 6300? That is kinda' nuts.

I believe in them though. I'm gonna' convert my shitty T to AMZN soon. Because I believe!