Trading spread on options?

[heech]

Hi,

Any thoughts on how to trade the ask/bid spread on options? My platform is IB.

If I understand IB correctly, there's an order cancellation fee every time I 'cancel' my option order (in order to move the price). That seems to make it impossible to sit and trade the spread.

Is there some way to get around that with IB? How about a different broker?

Thanks in advance.

 

[heech]

Hi all,

Just to answer the question for others looking at the same thing:

http://www.interactivebrokers.com/en/trading/orders/peggedStock.php?ib_entity=llc

The order price can float relative to the underlying, no need to constantly cancel/replace the order.

 

[optionsgirl]

Well, if you are trying to day trade options and compete with the market makers, I wish you luck. McMillan recommends in the money options for day trading.

 

[spindr0]

Does that PEG order avoid the adjustment/cancellation fee?

 

[heech]

Quote from optionsgirl:

Well, if you are trying to day trade options and compete with the market makers, I wish you luck. McMillan recommends in the money options for day trading.

I'm not actually trying to compete with the market makers. I'm trying to get into a larger number of contracts on a fixed vol, and split the ask/bid spread.

But obviously, any static price on options doesn't work when the underlying moves... that's what I'm trying to solve.

 

[heech]

Quote from spindr0:

Does that PEG order avoid the adjustment/cancellation fee?

That's my question, too.

I *believe* the PEG order going through BOX does avoid the adjustment/cancellation fee.

See this thread I started here, also:

http://elitetrader.com/vb/showthread.php?s=&threadid=161688

I wish I could ask someone authoritative. Who would know for sure? Create a ticket?

 

[Robert Weinstein]

Quote from heech:

Hi all,

Just to answer the question for others looking at the same thing:

http://www.interactivebrokers.com/en/trading/orders/peggedStock.php?ib_entity=llc

The order price can float relative to the underlying, no need to constantly cancel/replace the order.

Thanks for your post. That would be really great if I understand the link correctly AND there is no cancellation fee every time it changes.

Best to you

RW

 

[jwcapital]

Quote from heech:

Hi,

Any thoughts on how to trade the ask/bid spread on options? My platform is IB.

If I understand IB correctly, there's an order cancellation fee every time I 'cancel' my option order (in order to move the price). That seems to make it impossible to sit and trade the spread.

Is there some way to get around that with IB? How about a different broker?

Thanks in advance.

I have found the best way is to set up the spread is using the "combo feature." Suppose I want to do a bear call spread. I right-click on an empty row and select "general combo." Enter at the top your underlying (ticker and exchange--if doing stock options, choose smart." Then select the "single" tab." Choose "vertical spread." Then choose "sell combo." Now I can enter the short leg and the long leg. On the TWS page, you will see the legs separate as well as the combo bid/ask. In general, I choose a figure exactly between the bid/ask, and I lower it every 2-5 minutes until executed. If I am not mistaken, there is no cancellation fee for the spread like there is for the individual legs--you need to check this. Depending on the size of your trade, the cancellation fee may be peanuts and it shouldn't deter you from getting the best price for your spread. In addition, what you give up by hitting the bid/ask may be more than the cancellation fee in any instance.

 

[heech]

Quote from jwcapital:

I have found the best way is to set up the spread is using the "combo feature."

I guess what I really want to do is essentially provide liquidity, at a price that I happen to consider favorable...

I believe IB doesn't market the legs of a combo order, at least not the option legs... I believe it just keeps them on its books, and waits for ask/bid to hit a price that it considers favorable.

I'd *like* to have my (better!) option price show up on the ask/bid, while still having that price fluctuate with the underlying.