Quote from day7793:
Anyone who has ever ventured to trade SPX regrets to be in this index. SPX trades on a single exchange and lacks competition and pricing efficiency. Its a horrible index to get caught on an expiration Thursday if you are unlucky enough once.
Thursday 8/16/2007 was index expiration, and SPX was being jockeyed around by Hedge Funds and Trading desks up and down to 1370 levels. If you held a position on the day of expiration and if your options were under water, you would be paying a$ 3.00 difference between bid and ask prices. The bids and asks for spreads were equally nasty $ 4.00 and $5.00 ! It was highway ransom money for the market makers! For example Aug 1400 puts were priced at 19.00 bid x 23.50 ask and they would toss you to the side , if you dared to give them $ 1.00 more from the mid prices! The orders won't get filled. They wanted you to come up and shell out the ask at 23.50 ,or no deal at all.
HOW TO DEAL WITH SPX MARKET MAKERS
Here is a technique that you can successfully employ.
You take the mid price and place your order on 2 contracts.
If the bid was 19.00 and ask 23.50 , you place your order at 21.25 or even at 21.00 and watch that wide bid and ask collapse on your screen. Now they are required by law to show your bid, if they don't, call you broker and ask him how come my bid is not there ? Show it. Pretty soon this greedy market maker realizes that he has lots more to lose than gain. With that narrow bid of 21.00 and ask of 23.50, he can lose lots of bigger orders at 20, 30, 50 and 100 contracts, so he fills yours and gets you out of there as fast as he can and the bid goes back to staying at 19.00 x 23.50 on your screen but you are out. You should not increase the size of your contracts more than 2 or maximum 3 otherwise they will let you just languish there for a while.
So keep hitting them with ones and twos and keep hammering them till your entire position is out. Never give more than mid prices. This works on all SPX trades on any given day , try it.
