Option spread execution

R

RedDuke

Does anyone here trade ES put credit spreads with tight (25 points away) spread distance.

I find that it is really hard to get out of the position since the spread is usually 2 ticks on each options, and the premium is usually within 2-3 points if delta is within .1-.13

What is the best way to exit such positions.

Thanks,
redduke
 
The main issue with trading wide spreads (50 points or more), it does not provide much of protection over naked put. It costs more in commission and effort to roll it down, should market move against the position.

So is there anyone who trades credit spreads on ES and can pride an insight into execution?

Thanks,
redduke
 
You are right that a 50 point wide spread doesn’t help that much since your protection is far away, but your alternatives are to do a spread with closer strikes which may or many not alter the reason for you doing it, or just sell the put naked. The only way to do it naked is treat is just like you would be long an ES contract, which means using very low leverage.

I am not sure what your problem is in getting filled since the ES is so narrow. Try doing that spread in wheat or the NQ and you will see what a real problem is like. Since what you would be doing is very similar to just going long why not just trade ES?

If my answer is “stupid”, spindr0 may be able to help you out.:)
 
Hi opt789,

Thanks for a reply. I do trade futures directionally, but exploring options.

I want to have time decay on my side, and that is why I exploring options. If naked is the only way to trade I will trade them, but I am trying to get into spreads to help me manage/limit downside.

50 points do not give much of protection, 25 do, but the b/a spreads kills all the profits since premiums are rather low.

I do realize that ES is of the the most liquid options markets, and there is so some much written about spreads (iron condors) trading, yet when it come to real execution it does not work.

I bought 14 years of data on S&P options, and back testing showed pretty good results, but paying spread is killing the profits. Limit order work great for naked, but with spread I need to execute 2 att he same time, and limits do not help.

Regards,
redduke
 
One of the reasons it is difficult to get good execution on ES options spread is that the Globex currently does not enable implied pricing functionality regarding options spreads but only regarding certain futures spreads (see a discussion in previous post) . Therefore your ES option spread order can only be filled against an opposite spread order and not against individual orders that fit to the spread limit. I really do not understand why the Globex does not have such basic functionality while the other options exchanges already have it, but this is the current situation. Thus even if the ES futures are very liquid and also the ES options are relatively liquid, the liquidity of ES options spreads is very limited.

If you do not want to sell naked ES options I would suggest trying to implement a similar strategy on liquid options which have implied pricing functionality such as the SPY or the SPX.
 
ES options are quite liquid, and the spread is tighter than SPX. Not sure if anything else is out there in US that is more liquid. The only way tight spread execution work great is when underlying goes in your direction, but when it tickz a bit against you, even time decay does not help too much.

Still looking for an answer, so if there is anyone who can answer my question, the help is greatly appreciated.
 
Quote from RedDuke:

ES options are quite liquid, and the spread is tighter than SPX. Not sure if anything else is out there in US that is more liquid. The only way tight spread execution work great is when underlying goes in your direction, but when it tickz a bit against you, even time decay does not help too much.

Still looking for an answer, so if there is anyone who can answer my question, the help is greatly appreciated.
More...

I'm pretty sure SPX options are more liquid than ES. Also the screen market in SPX is generally very wide, wile the actual market (i.e. off-screen) is much tighter and you can get better fills.
 
Quote from MTE:

I'm pretty sure SPX options are more liquid than ES. Also the screen market in SPX is generally very wide, wile the actual market (i.e. off-screen) is much tighter and you can get better fills.
More...

I agree. SPX is more liquid at the strikes I trade. My index option commissions are also quite a bit lower that my futures option commissions @ TOS.
 
Quote from dragonman:

Therefore your ES option spread order can only be filled against an opposite spread order and not against individual orders that fit to the spread limit. I really do not understand why the Globex does not have such basic functionality while the other options exchanges already have it, but this is the current situation.
If you do not want to sell naked ES options I would suggest trying to implement a similar strategy on liquid options which have implied pricing functionality such as the SPY or the SPX.
More...
This was very interesting....and points out the difficulty in trading option spreads.
Does the CBOE have the same limitation i.e. spread orders can only be matched against other spread orders ?
 
Quote from syswizard:

This was very interesting....and points out the difficulty in trading option spreads.
Does the CBOE have the same limitation i.e. spread orders can only be matched against other spread orders ?
More...

No, as mentioned by dragonman.
 
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