index options spread question

T

thehixx

My strategy involves trading Russell 2000 index options. A typical trade would be the purchase of an in-the-money call, for example:

Index price=683
640 Call Bid 45.00 Ask 45.80

Since the multiplier is 100, the spread is $80. However, in my limited experience, I've been able to buy with a limit order just below the ask (say 45.60) and sell at a limit just above the bid (say 45.20), thereby decreasing the spread to $40.

My question is this:

Is there anyone out there who trades in a similar style who can tell me how much they can consistently cut the spread to? For example $80,70,60,50,40,30,20,10,0?

Also, I realize the spread would be less with a futures contract or just owning the etf. However, I hold for several days and over many years I am concerned that a terrorist attack or other event could wipe me out, so I use options to limit my risk.
 
Just another thought, you might want to check out mini Russell 2000 or IWM options. I haven't looked at IWM, but QQQQ options are so liquid, the spreads really come down.

You'd have to look at what the mini russell is. The mini nasdaq is $MNX.
 
Quote from FullyArticulate:

Just another thought, you might want to check out mini Russell 2000 or IWM options. I haven't looked at IWM, but QQQQ options are so liquid, the spreads really come down.

You'd have to look at what the mini russell is. The mini nasdaq is $MNX.
More...

Thanks for the tip. I will check out the spreads on mini Russell 2000 options. I will look into IWM options, too, but I think they are taxed as ordinary income, while the index options are taxed as 1256 contracts with 60%LT/40%ST.
 
Subtract the strike price of the call (640) from the current futures offer i.e. 683 and you have a differance of 43.00 Now add the price of the 640 put, i.e. 2.10-2.50 and you'll know what the call should be worth.
Quote from thehixx:

My strategy involves trading Russell 2000 index options. A typical trade would be the purchase of an in-the-money call, for example:

Index price=683
640 Call Bid 45.00 Ask 45.80

Since the multiplier is 100, the spread is $80. However, in my limited experience, I've been able to buy with a limit order just below the ask (say 45.60) and sell at a limit just above the bid (say 45.20), thereby decreasing the spread to $40.

My question is this:

Is there anyone out there who trades in a similar style who can tell me how much they can consistently cut the spread to? For example $80,70,60,50,40,30,20,10,0?

Also, I realize the spread would be less with a futures contract or just owning the etf. However, I hold for several days and over many years I am concerned that a terrorist attack or other event could wipe me out, so I use options to limit my risk.
More...
 
If you want to hedge stocks with either SPY /ES would you use 1 ES for every 500 shres of SPY? I got to that by taking last price of ES 1265 * 50=$63250/SPY Last which comes to about 500 shares.

Would you do the same for the QQQQ/NQ?

1677*25 / QQQQ last= 800 shares of QQQQ.

Thanks
 
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