The Undereducated, Underexperienced, Underage, Underdog's Journal

The spreads are a good tool to use in options when you anticipate a directional move in price before expiration.

The maximum profit/loss is defined, but whether they're predictable or easy is another story. That rests entirely on your strategic decisions.
 
Quote from stefan_777:

Since you're with optionsxpress, try demoing Xspreads for a few months. BTW, spreads work best with heavily traded options with tight bid/ask spreads. SPY, QQQQ, highly active stocks, etc...

Use them on options where the near the money bid/ask prices are no wider apart than a cent or two during the day.
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"highly active stocks"
I see stocks with unusually high volume have options that are still trading with wide spreads.
why is this the case?
 
Quote from zdreg:

"highly active stocks"
I see stocks with unusually high volume have options that are still trading with wide spreads.
why is this the case?
More...

Because the market-maker wants to be compensated for the risk he has to absorb in something that is more volatile. His edge-per-trade needs to go up.
 
Quote from zdreg:

wouldn't high high frequency traders and active traders narrow the spread on high vol. options?
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If it's profitable for them, sure. The spread in options is a direct function of the cost structure involved for the MMs.

If it's a penny option with high volume, you'll get guys who'll step in and play games trying to collect the spread (and I guess, on some ECNs a rebate), because they'll bypass hedging out their deltas and carrying the inventory on their books. But not all MMs have the infrastructure to pull it off, and HFT players won't step in until they themselves figure out a way to be profitable. Really depends on who is trying to do what.
 
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