The bid/ask spreads of NDX options are much smaller than those of SPX options. Does this have something to do with the fact that NDX and MNX options have multiple listing (CBOE, ISE, etc.)?
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
The bid/ask spreads of NDX options are much smaller than those of SPX options. Does this have something to do with the fact that NDX and MNX options have multiple listing (CBOE, ISE, etc.)?
I understand that one has to have a good "feel" of the underlying in order to be profitable in selling premiums (I don't tracking S&P as close as I do to NASDAQ. Otherwise I'd be able to appreciate your journal more thoroughly. ) It seems to me that because my credit vertical spreads are much more close to the money (the short leg has delta 30 to 40), it is even more critical to have a good feel of the underlying than if the delta is 10. The offset is that risk control is less critical. Is my observation making sense to you?
Using higher delta strikes obviously means you are closer to the current value of the index than the 10 delta strike. This means, as expected, that you are less able to tolerate price swings slightly out of the ordinary. So you would need much tighter risk management controls.
That is why I personally like the SPX because I can choose strikes that allow me more of a comfort level to accept even large price swings in a given month. I can also use strikes with a delta of 30 to 40 and collect a lot more premium, but I run a higher chance of losing more often so it becomes a true balance of risk/reward.
As I have often said, the key to trading, especially these strategies, is risk management. Making money comes second if you cannot keep it. So choosing higher delta strikes just requires tighter risk management and you may have to cut your losses more frequently but the rewards are also higher to compensate you for those rewards.
Although this thread focuses on the SPX, the same approach can be done on the Nasdaq options on futures if the Nasdaq is the index you know better or feel more comfortable with.
Phil
That is why I personally like the SPX because I can choose strikes that allow me more of a comfort level to accept even large price swings in a given month. I can also use strikes with a delta of 30 to 40 and collect a lot more premium, but I run a higher chance of losing more often so it becomes a true balance of risk/reward.
As I have often said, the key to trading, especially these strategies, is risk management. Making money comes second if you cannot keep it. So choosing higher delta strikes just requires tighter risk management and you may have to cut your losses more frequently but the rewards are also higher to compensate you for those rewards.
Although this thread focuses on the SPX, the same approach can be done on the Nasdaq options on futures if the Nasdaq is the index you know better or feel more comfortable with.
Phil
I have been told by a market maker that the reason for the wide bid/ask spread on the SPX is mainly because it is only traded on the CBOE. However, due to the fact that there are several market makers competing for orders on the SPX, it does make it easier to split bid/ask spreads somewhat, or better said, never having to sell at the bid or buy at the ask. If you place an order and leave it there for a while, the b/a spread will adjust to your order if it is large enough (i.e., not 5 contracts).
I have seen it many times where I place an order somewhat off the middle for 50 contracts and 20 minutes later the bid is about $0.20 away now from my limit order. Usually a shave of a nickle or so at that point gets me filled. It is a game at times but that is the nature of the SPX.
In all that rambling, did I answer your question?
Phil
I have seen it many times where I place an order somewhat off the middle for 50 contracts and 20 minutes later the bid is about $0.20 away now from my limit order. Usually a shave of a nickle or so at that point gets me filled. It is a game at times but that is the nature of the SPX.
In all that rambling, did I answer your question?
Phil
Took some more profit on one of my JULY put spreads.
The original position was:
100 SPX JULY 1140/1145 Put Spreads @ $0.40
Closed it at $0.15 for a net credit of $0.25
Credit = $2,500
Return on Margin = 5%
My CURRENT positions are:
55 July SPX 1150/1165 Put Spreads @ $0.50
95 SPX JULY 1260/1270 Call Spreads @ $0.45
I will post a new update on June P/L soon but may hold off since I may close one of the above as well if I can scalp. I have cleared up a lot of margin and will be waiting to jump into some August positions when July comes.
Phil
The original position was:
100 SPX JULY 1140/1145 Put Spreads @ $0.40
Closed it at $0.15 for a net credit of $0.25
Credit = $2,500
Return on Margin = 5%
My CURRENT positions are:
55 July SPX 1150/1165 Put Spreads @ $0.50
95 SPX JULY 1260/1270 Call Spreads @ $0.45
I will post a new update on June P/L soon but may hold off since I may close one of the above as well if I can scalp. I have cleared up a lot of margin and will be waiting to jump into some August positions when July comes.
Phil
You certainly answered my question. Thanks.
Aren't SPX and NDX options pit traded? Why is it that they are tradeable in Interactive Brokers? Are they both pit and electronically traded? If yes, are we getting the best available spreads by trading through IB or is it possible to get better spreads if one uses other brokers with pit access? Sorry for these elementary questions.
For NDX options, we have a choice of AMEX,CBOE, ISE and SMART. Should we trade through SMART all the time since it will give the best available quotes from all 3 exchanges, right? Are trades from all three exchanges interchangeable(fungible)? That is, can a buy from AMEX offset against a sell of a same contract in ISE or SMART?
Thanks for answers.
For NDX options, we have a choice of AMEX,CBOE, ISE and SMART. Should we trade through SMART all the time since it will give the best available quotes from all 3 exchanges, right? Are trades from all three exchanges interchangeable(fungible)? That is, can a buy from AMEX offset against a sell of a same contract in ISE or SMART?
Thanks for answers.