Beating the Spread

Discussion in 'Options' started by Norm, Aug 23, 2005.

  1. Norm


    Hello All,

    Can anyone please tell me how difficult it is to buy options at or near the bid and to sell at or near the ask. I suspect it is a matter of patience and luck, as with common stocks, but I have not yet tried.

  2. Lucrum


    Some people claim to do it consistently.
    I never could, in fact I'd swear my order was the last in the que no matter how long the order had been at the exchange.
    I do mostly futures now.
  3. If you want to be first in the queue one way to do it is to put a good to cancel limit order in a about 4:10pm. Not many people do this and you are like to get filled first thing the next morning. Check the futures to make sure you still want the fill. I used to do this all the time with qqqq options
  4. The qqqq line is always a mile long. When you say you used to put in GTC's in the qqqq, did you give up when even the GTC's weren't effective in getting you to the front of the book?
  5. I stopped trading equity options because the market structure heavily favours the market makers. Can you believe that you can't have orders on both sides of the market? You Americans should write your senator to complain. The structure of the US equity options market is just plain un-american. I switched to futures and futures options because it is a much more level playing field for the small guy.

    (Just think about how much fun it would be to trade qqqq backspreads if you could play both sides of the market and constantly adjust you delta)
  6. kny3


    Hey ZF. Interesting post.

    1. investor orders still get priority over market makers (to the best of my knowledge).
    2. You can't have orders on the same side of the market? I can. I think you're wrong. Talk to your broker. I think market makers can't from off the floor, not sure.
    3. We Americans should write our Senator to complain. Actually we have 2, and neither one gives a rat's a** about anything that doesn't speak to them raising money fore themselves. Why don't you write your National Assemblyman, Jacques Chirac or the Prime Minister.
    4. Option market seems pretty American to me. You ever try to get a 20 lot done on the Montreal option exchange? The Vancouver OTC market was a pretty level playing field years ago as I recall....
    5. "...switched to futures and futures options...much more level playing field for the small guy" I've heard lots of descriptions of futures options but never this one.
    6. qqq backspreads... That would have worked well the last year or so, I can't imagine the fun I would have had.
    The market structure heavily "favours" the hard working investor, whatever they do and whatever they trade.
  7. Choad


    I often get outstanding fills, probably about 40% of the time. By outstanding I mean, for example, at or below the bid on long ops. And some of these are on already (by my calcs) low IV stocks. Getting a good fill - that's half the battle won right there!

    I suggest limit orders and patience. You never know how hungry the MMs or floor guys are, or where the stock will gyrate during the day.

    You might just be surprised at how well you can do. :cool:
  8. I have been under the impression the spreads in future options are even worse than in equities.

    I am refering to long dated options. How do you get around the spread if some contracts don't have GTC feature ?

  9. I will admit that I do often punch with futures options. The way that I overcome the spread though is by trading the underlying and use the long option as more of stop loss order.

    With a lot of futures options the volume numbers don't look very good but remember there is liquidity spilling over from the pits.

    What really levels the playing field is the ability to have open orders to buy and sell at the same, no order cancelation fees and no pattern day trading rule. These three rule are the "un-american" ones. These rules are a result of the options exchanges acting like a cartel and paying of senators for the privilege.
  10. I think it depends on the option and the MM. Today, for instance, I sold at the ask for some ADBE options, and got immediately filled in the middle of a $.20 spread for some OSIP options. SPY options almost never get filled except at the NBBO, but if I get filled at the Boston exchange I see a price improvement of $.01-.03 about half the time.
    #10     Aug 23, 2005