SPX Quarterly Options Warning

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arizonadreamer

Folks,

SPX quarterly options are fairly new and seem to have low volume. As such, it has been nearly impossible to split the wide bid/ask spreads. You thought the regular SPX contracts were tough, try these.

The other day I saw someone trying to sell a bunch of contracts at 3. The quote went from 2.2 x 3 to 2.3 x 3 all the way up to 2.95 by 3. The MMs would not budge. Finally,when the natural bid hit 3, the contracts sold and the bid went to 3.0 x 3.8 instantly.

I'm just trying to save you guys some $$. Plan your strategies with this in mind.

Good luck.

AZD
 
Quote from arizonadreamer:

Folks,

SPX quarterly options are fairly new and seem to have low volume. As such, it has been nearly impossible to split the wide bid/ask spreads. You thought the regular SPX contracts were tough, try these.

The other day I saw someone trying to sell a bunch of contracts at 3. The quote went from 2.2 x 3 to 2.3 x 3 all the way up to 2.95 by 3. The MMs would not budge. Finally,when the natural bid hit 3, the contracts sold and the bid went to 3.0 x 3.8 instantly.

I'm just trying to save you guys some $$. Plan your strategies with this in mind.

Good luck.

AZD
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UPDATE: 6 months later and nothing has changed. Unless there is another retail order out there, it seems you almost have to sell at the bid and buy at the offer. This wouldn't be all that bad if the spreads were not "Grand Canyon" wide.

AZD
 
How do those work? why are they priced so much higher than the marches that expire just a few days before. there's gotta be an arb there no?
 
Quote from bt116:

How do those work? why are they priced so much higher than the marches that expire just a few days before. there's gotta be an arb there no?
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I was looking at the Decembers.

You are probably not going to be able to arb anything with the spreads so wide.

AZD
 
yeah, i was looking and there can be quite a bit af room between the two expiries. for march there's 11 days in between the march monthly and the Q1 (march) qtrly. i'm sure theres a way to arb them, and i'm also quite sure thats why they made them. there's so many big players in those things that the edge for the individual has to be non-existent. keep in mind that with the touch of a button, a large fund can buy or sell every stock in the s&p, buy or sell the futes, and buy or sell the options as soon as they see that something is out of line.
 
Quote from bt116:

yeah, i was looking and there can be quite a bit af room between the two expiries. for march there's 11 days in between the march monthly and the Q1 (march) qtrly. i'm sure theres a way to arb them, and i'm also quite sure thats why they made them. there's so many big players in those things that the edge for the individual has to be non-existent. keep in mind that with the touch of a button, a large fund can buy or sell every stock in the s&p, buy or sell the futes, and buy or sell the options as soon as they see that something is out of line.
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Big firms can not buy or sell all 500 stocks in the index at once, thats a joke. Crossing 500 bid offer spreads would lose them a fortune nor can you send basket orders that big. They can buy or sell the futures but the markets are so deep its not easy to move them. Fund's cant buy or sell the options so easily for a couple reasons, mostly they go into the market as "firm" as opposed to "customer retail" so they cant trade with the screens so easily. MM's dont have to honor the screens for "Firm" orders. Also the SPX options are NOT electronic access. When you send an electronic order to the CBOE for an SPX series it hits a broker box and he keys it into the system he has to stay on top of the orders.

By the way the markets you see on the screen are spit out by a computer, the pricing parameters are set by the pit. No one is moving indiviudal markets around to accommodate 1 order the computer changes the bid / offer based on the move in the futures.

I agree the quarterly options are thin and wide its a function of liquidity like anything else.

All these options no matter what the expiration date can be arbed or time spread by the way. When you calculate fair value for the quarterlies you simply enter the correct number of days into your system and its just like any other SPX option.
 
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