Robert Morse
Sponsor
Why?
Limited strikes
- Thread starter Bekim
- Start date
Because the cost is less
Robert Morse
Sponsor
When I trade any option spread, I do it with an expectation of something occurring or not occurring over a limited time period. Sometimes I want the same strike and sometimes not. Low cost of the spread is not a typical requirement for me.
Two observations:
1) ES and SPX monthlies trade at multiples of the weeklys' volume, but have bid-ask spreads of 2x-4x the weeklies, and a trade put-to-market at the MID may sit the entire day without getting hit. The same trade in the weeklies would be hit pronto.
2) Strikes fill as expiration nears. (And gaps *may* get filled in entirely, or (for far-away strikes) remain through expiration.)
I understand, I sometimes want the strike equal and sometimes I don't, but Im still curious as to why they offer less strike selections in the monthly's?
You are comparing near-term weekly(s) to far-term monthlies. The monthlies will fill in.
Why would low cost of a spread not be an issue for you? That's like saying, "here market maker, skim some off the top of my trade".
The strikes do matter if limited. AAPL is a good example. Weekly is by $1 and monthly by $5. Monthly is July 21, Weekly is July 7, 14, 28. if AAPL is 147, which it was around open, I could buy a 7/14 atm instead of a monthly deep ITM 2117C145 and I would have a narrower spread than the monthly. That means more profit potential.
Now that AAPL @145.79 11.33 ET, good time for 2117C145 monthly,
Call the floor and you will get filled very close to mid.
The net premium has very little to do with how much market maker is going to make on your trade. What matters is delta - if you try to execute a tight zero-cost collar it's a god send to AMMs.