SPY options bid ask spreads
- Thread starter cafeole
- Start date
ITM contracts will have wider spreads than the OTM contracts. The reason is higher delta means they're more sensitive to the underlying price moves, so the market maker has more hedging exposure to the underlying spread / liquidity.
Also, I wonder if you were trying to close during the move yesterday after the FOMC (when they went your way)...those spreads were something special.
I wander how people back test something like that!?
What would you back test? When the spread is wider than theoretical value, the first (showing) bid and ask aren't very meaningful.
I mean when someone backtests options strategies they must make assumptions on the fills.
I wasn't. I don't trade FOMC days.
I noticed something today in SPY options, 1 day to expiration. If the option is below 0.70 delta, the spread was the usual 0.05-0.07. So I watched a put strike with 0.67 delta just before a large downward price movement - when the delta went above 0.70 the bid stopped moving, i.e the spread kept widening until there was about 0.24 spread. The strikes that stayed below 0.70 did not widen. The result was would have been that someone buying this option would have made about 0.67x(price movement). It was as if the delta was fixed by widening the spread.
IMO, this is highway robbery.
IMO, this is highway robbery.
Then make a market in options! If you figure out a way someone is legally making windfall profits in the market why in the world would you sit around complaining about it instead of joining in and exploiting the shit out if it?