This is a reflection of the instantaneous delta risk the market maker takes on whilst taking the other side of your trade before completing their conversion/reversal etc. In other words, the larger the delta of the option the wider the spread is likely to be. MoMoney.
BTW, if you are an IB client, be careful with ITM option trading if you don't have the underlying stock and are relying on margining.
take into consideration that if you are buying an ITM option to reduce your risk, someone is taking on that extra risk. for that they will charge you. i agree sometimes the spread gets a little too large or inconsistent for some stocks. they only way around this is to factor that into what you think you can make on the trade. i usually avoid most illiquid stocks unless there is a really good trade available. its just not worth the effort otherwise.
Not to hijack the thread......... What about options on futures? Can someone convince this is safe. I have been screwed trying sell them twice. I would like to try it again, haven't in 4 years because of bad fills and no good ways to get quotes. Hmm, can I get the quotes off of IB?
Option Trader What do you mean? If you buy a $10 put you pay $10. There is no margin allowed. It doesn't matter if you own the stock or not. Don't pin this one on IB. kny 3 PS I know, some LEAPS are marginable, most firms don't allow
One consideration could be to attempt a reasonable "compromise", and limit the depth of your ITM strike to a delta of in the -70 range (instead of -1). This will get you to a strike with more volume, and hopefully allow you a more peaceful exit (tighter bid/asked spread). For whatever strategy you are refining, here, I would think there may be a "sweet spot" for the strike delta that would make sense for your trade. Regarding the Bid/Asked spread: I have noticed large bid size and large asked size with an uncomfortable spread, that I have been able no narrow, but playing with my limit orders. --- IE, a sizable number of the existing bids, will also move to your bid if you step in gradually. (Ditto for the Asked).
When you trade DITM options, especially those that are thinly traded, your counter party almost always are the market makers and not other traders like us. I found when buying I could get prices in between bid/ask, when selling, I could only get prices that had close to no intrinsic value, i.e., the arbitrage free price. So, when traded DITM, I had to factor in the buy/sell spreads as part of the costs. Hard to make money that way unless the direction is really really in your favor. But, I sometimes traded thinly traded options to avoid the pros because I usually lost money (compared to buy & hold) when I traded high volume indices or stocks (like AAPL, GOOGL...) as my counter parties there were always the pros (like you folks on this site) who knew more about options than I could ever learn.