Large options spread

newwurldmn · Dec 3, 2022

misterkel said:
Really? Assymetric payout, hedging premium collection, discounted entry into underlying (selling puts), underlying proxy (DITM calls, or puts or synthetics).
Many,, many reasons to trade options.

Vol trade; Vol trade; Distribution trade (which is really a vol trade); Inferior to trading cash products for the reasons stated in the OP (except for the purposes of trading forward vs cash)

newwurldmn · Dec 3, 2022

spy said:
I'm not getting into a pissing contest here, find @TheDawn for that. I just wanted to point out that vol is not technically the only factor at work. It may be the most important, sure. But... it's not the only one; which is what you somewhat implied.

Concede now! Lol... j/k, listen to @newwurldmn, I'm just a humble software engineer. We don't know anything compared to the analytic gurus who could bury us with nothing more than a pencil and some paper; maybe an abacus or slide rule for the "rough stuff". Seriously, IDK how they work their magic!

Software engineer... i tried that for my Co-op. When the firm asked if I was coming back, i said "No. I'm going to try Wall Street instead."

spy · Dec 3, 2022

You're really not my friend are you @newwurldmn

Just can't refuse to go down the rabbit-hole! Topic, on-topic... prove your smarts

newwurldmn said:
Vol trade; Vol trade; Distribution trade (which is really a vol trade); Inferior to trading cash products for the reasons stated in the OP (except for the purposes of trading forward vs cash)

newwurldmn said:
Software engineer... i tried that for my Co-op. When the firm asked if I was coming back, i said "No. I'm going to try Wall Street instead."

Dealing with a computer can be frustrating, I know some just can't hack it. Sorry, that was a cheap shot but had to get it in. ON TOPIC! (needed to remind myself)

newwurldmn · Dec 3, 2022

spy said:
You're really not my friend are you @newwurldmn Just can't refuse to go down the rabbit-hole! Topic, on-topic... prove your smarts

Dealing with a computer can be frustrating, I know.

I am avoiding giving my kids lunch and helping my middle with his math homework.

Dna7272 · Dec 3, 2022

Ok, based on the answers there's no trick that helps with the spread. Midpoint and providing liquidity is not gonna work for obvious reasons. @newwurldmn it's true that it's easier to predict volatility. That is the main reason why i think about options, but the spread kills everything.

spy · Dec 3, 2022

Dna7272 said:
Midpoint and providing liquidity is not gonna work for obvious reasons.

Can you provide a few of these reasons?

Aren't placing a limit order at the midpoint and providing liquidity basically the same things? Couldn't you deliberately look for options with a small spread and use those to lever your primary edge?

I'm trying to think of the how's not the what's.

What should I trade... IBM.
How should I trade IBM... short it? buy it? buy a call? sell a call? Sell a call and buy a put?

misterkel · Dec 3, 2022

spy said:
Just kidding, would it be possible, just this once (dear God please!) to avoid the pissing contests and stay on-topic?

The title is:

Large options spread
and it seems the crux of the question is:

"how you guys trade options. Because of the large spread you lose a lot of money"

Sure:
Many options only appear to have large spreads. In reality, you can hit the middle a surprising number of times, or go past just a few cents. Try it!
Especially, try it with <10 contracts. MM's, I think, like to clear away smaller bids, so they will just take the trade after a few minutes.
Also, put up an OCO order to try and hit a few different contracts.
If you're trading vert/cal spreads, then bid the middle or a hair past. Then, when another trader crosses and hits you're bid/ask, the other one will be able to cross the spread for its b/a, giving you the middle.

And, OP - wtf are you talking about with SPY options? B/A on spy is very tight, especially within 3 months out.

But- are we not allowed to respond to other comments in a thread?

Dna7272 · Dec 3, 2022

spy said:
Can you provide a few?

I thought it is obvious. When you buy on bid or midpoint it's more likely that your order is going to get filled when the price goes against you.

Dna7272 · Dec 3, 2022

misterkel said:
Sure:
Many options only appear to have large spreads. In reality, you can hit the middle a surprising number of times, or go past just a few cents. Try it!
Especially, try it with <10 contracts. MM's, I think, like to clear away smaller bids, so they will just take the trade after a few minutes.
Also, put up an OCO order to try and hit a few different contracts.
If you're trading vert/cal spreads, then bid the middle or a hair past. Then, when another trader crosses and hits you're bid/ask, the other one will be able to cross the spread for its b/a, giving you the middle.

And, OP - wtf are you talking about with SPY options? B/A on spy is very tight, especially within 3 months out.

But- are we not allowed to respond to other comments in a thread?

I didn't say anything about SPY i said S&P constituents

newwurldmn · Dec 3, 2022

Dna7272 said:
Ok, based on the answers there's no trick that helps with the spread. Midpoint and providing liquidity is not gonna work for obvious reasons. @newwurldmn it's true that it's easier to predict volatility. That is the main reason why i think about options, but the spread kills everything.

you can often trade a few cents off of mid in liquid names.

often your edge is much greater than the spread (for example you have 2 dollars of edge with bid offer being 25
Cents)

sometimes the spread is too big to make the trade worthwhile especially in really illiquid names