Beating the Spread

stock777 · Aug 23, 2005

Quote from Choad:

I often get outstanding fills, probably about 40% of the time. By outstanding I mean, for example, at or below the bid on long ops. And some of these are on already (by my calcs) low IV stocks. Getting a good fill - that's half the battle won right there!

I suggest limit orders and patience. You never know how hungry the MMs or floor guys are, or where the stock will gyrate during the day.

You might just be surprised at how well you can do.

You sure you're not being picked off, and just oblivious.

arcticwanderer · Aug 23, 2005

I mainly traded options on QQQ's for a couple of years. I don't think I ever bought on the ask unless the market started to take off. The reversals in the first hour usually got me filled at the bid.

Choad · Aug 23, 2005

Quote from stock777:

You sure you're not being picked off, and just oblivious.

Positive!

Even in the down/sideways market of the last few weeks my long only call port of more than 20 stocks in different sectors (all 6 month or greater exp) has been steadily moving up.

Sure we could dump and not have the usual late Oct - Dec runnup, but if we do I make nice coin. If we don't my low-leverage won't hurt the account much, and my stock auto-trade system will do great.

What's not to like?

wilburbear · Aug 23, 2005

Quote from Choad:

I often get outstanding fills, probably about 40% of the time. By outstanding I mean, for example, at or below the bid on long ops. And some of these are on already (by my calcs) low IV stocks. Getting a good fill - that's half the battle won right there!

I suggest limit orders and patience. You never know how hungry the MMs or floor guys are, or where the stock will gyrate during the day.

You might just be surprised at how well you can do.

How do you get filled below the bid?

Choad · Aug 24, 2005

Quote from wilburbear:

How do you get filled below the bid?

Oops.

My bad. Of course I mean below or at the CURRENT bid when I put in my limit order. But I have seen the bid/ask change to execute my order when I put them in near the bid, then go right back to the old b/a. And this is without the stock moving much.

I miss a few trades, but there are always more and the ones I get are in very good positions, statistically, for a nice r/r over the life of the op.

I'm just trying to show that you don't have to always pay up for the shameful spreads on most stock ops. Most stocks will bounce around enough to get you filled. And there's no reason to be in a hurry on these six-month call swing trades.

MTE · Aug 24, 2005

Quote from stock777:

You sure you're not being picked off, and just oblivious.

I actually agree with Stock777.

How do you define that you've been filled at the bid/ask? If you put in a buy order at the bid and then the market moves so that your bid becomes the best and only bid at that particular price then, technically speaking, you're no longer at the bid, your order is inside the spread.

invaliduser · Aug 24, 2005

I usually only get filled if the trade crosses my limit price. That is not what I would call great fills or an advantage.

If you split the spread, say its .90 and 1.00, and go in at .95 most times you will be matched by the mm and being 1st in line is worthless. Sometimes you will get filled so they can maintain the spread. But beating the spread just does not happen for me.

ktm · Aug 24, 2005

Quote from invaliduser:

If you split the spread, say its .90 and 1.00, and go in at .95 most times you will be matched by the mm and being 1st in line is worthless. Sometimes you will get filled so they can maintain the spread. But beating the spread just does not happen for me.

Another tactic that works with wide spreads and MMs who match every move is to use the other side to get some volume out of them. Say it's 1.00 to 1.20 and the MM always matches you up or down to 1.10 and you would be happy buying at 1.10 but don't want to sit on the bid all day. Toss a few contracts to sell at 1.15, then 1.10 and let them come with you. Then enter the buy order for 1.10 when he matches you with size.

I'm not saying I've ever done this, because it may even be illegal...but it happens.

Choad · Aug 24, 2005

Quote from MTE:

I actually agree with Stock777.

How do you define that you've been filled at the bid/ask? If you put in a buy order at the bid and then the market moves so that your bid becomes the best and only bid at that particular price then, technically speaking, you're no longer at the bid, your order is inside the spread.

Okay, I guess I should frame this wrt my trading systems. Yes my best fills are because the stock moved down to put me in range, so I could have been "picked off", as you say. But quite often the stock pops back up to put me in a profit situation the same day.

I don't daytrade so I don't watch intraday moves. I select a stock and option based on current IV I am willing to pay. And I'm not willing to pay very much. There is enough "noise", even in stocks with low IV, to get good fills intraday. That's all I'm trying to say.

And, contrary to most info I've seen, high IV stocks don't necessarilly move *farther* than low IV stocks, when examined on multi-month time frames. So paying up for IV is never a good idea IMO.

Regards.

C

MTE · Aug 24, 2005

Quote from Choad:

Okay, I guess I should frame this wrt my trading systems. Yes my best fills are because the stock moved down to put me in range, so I could have been "picked off", as you say. But quite often the stock pops back up to put me in a profit situation the same day.

I don't daytrade so I don't watch intraday moves. I select a stock and option based on current IV I am willing to pay. And I'm not willing to pay very much. There is enough "noise", even in stocks with low IV, to get good fills intraday. That's all I'm trying to say.

And, contrary to most info I've seen, high IV stocks don't necessarilly move *farther* than low IV stocks, when examined on multi-month time frames. So paying up for IV is never a good idea IMO.

Regards.

C

Couldn't agree more, it doesn't matter whether it is a low IV stock or a high IV stock, options are priced accordingly so it is all proportional anyway. (i.e. higher IV = more expensive options = bigger move required. Lower IV = less expensive options = smaller move required)