SPX index options

FT79 · Sep 23, 2007

Hi,

The spreads of the SPX-index options are huge but what size do you need to trade to get a reasonable execution (say 10-20 cents from the midpoint of the Bid-Ask spread). I only know if you trade 100+ contracts you get good execution but what happens if you trade 2 till 5 contracts.

Thanks,
FT79

FT79 · Sep 23, 2007

Quote from damnit:

I just pay the spread and am happy overall.

Ok, but what happens if you try to get exectuted 10/20 cents from the midpiont and do you get fully executed.

El OchoCinco · Sep 23, 2007

Quote from damnit:

I just pay the spread and am happy overall.

You are happy paying $1.00 or more spreads on SPX options or did I misunderstand what you said?

I never buy at the ask or sell at the bid for SPX because the TRUE inside quote on the FLOOR is much tighter than what a broker platform states so you shoudl sahve off when trying to place an order. If you do considerably size your broker might call down and get the inside quote (ToS does this). But no reason to throw away dimes or more when trading SPX options.

segv · Sep 23, 2007

Please do not feed the bears.

FT79 · Sep 23, 2007

Quote from optioncoach:

You are happy paying $1.00 or more spreads on SPX options or did I misunderstand what you said?

I never buy at the ask or sell at the bid for SPX because the TRUE inside quote on the FLOOR is much tighter than what a broker platform states so you shoudl sahve off when trying to place an order. If you do considerably size your broker might call down and get the inside quote (ToS does this). But no reason to throw away dimes or more when trading SPX options.

I don't trade big lots (but perhaps in the future I will trade 100+ contracts per order

). When I start it will be small and trading from 2 till 5 contracts per leg. With this size can I get filled with 10/20 cents of midpoint?

Thanks,
FT79

IB Kevin · Sep 24, 2007

Quote from damnit:

You would likely be filled only if the market moved in a favorable direction for the MM. For instance, you place order 20 cents below midpoint and the market moves against you. The MM would be more likely to fill it because the order is no longer below the midpoint.

Damnit is correct. Small orders are typically filled .20 from the midpoint only when a) it is no longer the midpoint, or b) another customer order takes you out. Also, remember that you are basing your midpoint calculation on an electronic quote that may not accurately reflect the real market. Large orders that are better than the posted markets may not be displayed, as the broker working that order is trying to get his customer price improvement. That price improvement may come from your electronically submitted order, sent w/ a limit price worse than what you could have done w/ a verbal quote.

The real market/midpoint is only available via a verbal quote prior to exposing your order to the pit. At IB, a 100 contract order size is the minimum requirement to have access to these verbal quotes.

El OchoCinco · Sep 24, 2007

Quote from FT79:

I don't trade big lots (but perhaps in the future I will trade 100+ contracts per order ). When I start it will be small and trading from 2 till 5 contracts per leg. With this size can I get filled with 10/20 cents of midpoint?

Thanks,
FT79

There is no easy answer nor can I state at what price you can get filled. I always tell people to take the midpoint between the mid of the b/a and the actual bid or ask as a starting point to work an order.

So if the b/a is $1.00/$2.00 and you wish to sell, a good point to start with an order is $1.25 which is halfway between mid point and the bid. No guarantees of course but a back of the envelope guide. If you have a sizeable enough order at IB or ToS then call in and get the narrow inside quote from the floor and adjust accordingly.

nitro · Sep 24, 2007

Quote from FT79:

Hi,

The spreads of the SPX-index options are huge but what size do you need to trade to get a reasonable execution (say 10-20 cents from the midpoint of the Bid-Ask spread). I only know if you trade 100+ contracts you get good execution but what happens if you trade 2 till 5 contracts.

Thanks,
FT79

Why on earth would you ever trade SPX options if all you are looking to do is get mid? Just trade 5 ES options for every SPX option you would have done to get the same exposure. If on the other hand you have a strategy that you feel is better implemented in pit traded contracts, or the wide bid/ask spread is part of your strategy, then that is another matter.

ES options have 30% to 50% tighter spreads than SPX options. SPX options are meant for institutions.

nitro

FT79 · Sep 24, 2007

Quote from optioncoach:

There is no easy answer nor can I state at what price you can get filled. I always tell people to take the midpoint between the mid of the b/a and the actual bid or ask as a starting point to work an order.

So if the b/a is $1.00/$2.00 and you wish to sell, a good point to start with an order is $1.25 which is halfway between mid point and the bid. No guarantees of course but a back of the envelope guide. If you have a sizeable enough order at IB or ToS then call in and get the narrow inside quote from the floor and adjust accordingly.

Thanks! If I look at the OEX index options (American Style) the spreads are must narrower. Do you know why this is the case because also the OEX is single listed (CBOE). RUT and NDX spreads are also very nice.

Sorry for all those questions but I'm from Europe and only trade DAX/EuroStoxx50/AEX index options and used to much better spreads ( a spread of 20 cents in index options is a lot in Europe).

FT79 · Sep 24, 2007

Quote from nitro:

Why on earth would you ever trade SPX options if all you are looking to do is get mid? Just trade 5 ES options for every SPX option you would have done to get the same exposure. If on the other hand you have a strategy that you feel is better implemented in pit traded contracts, or the wide bid/ask spread is part of your strategy, then that is another matter.

ES options have 30% to 50% tighter spreads than SPX options. SPX options are meant for institutions.

nitro

You are absolutely right but I like to trade in products where there is volume. Second, I'm from Europe and trade European index options like DAX, Eurostoxx50 and AEX (also single listed) but a spread of 20 cents in these products is a lot. For example, AEX index options have spreads of 10 cents where you get executed in middle (doesn't matter if you are buying or selling it). The average volume is about 100,000 contract per day, if you compare this with SPX (at least 500,000) you would expect good spreads.