I've been comparing SPX options and ES future options on my IB account. It appears that ES options have much tighter bid/ask spreads. Is that normally the case? I'm used to the futures market, so also confused with these posts regarding the bid/ask spread on options: this person says the bid/ask spread is tighter than what is actually displayed??? this person says you can usually trade just off mid if it's a true mid with a mm on both sides How can you trade off the midpoint? Are there hidden orders on the book? Sorry for the questions but I'm used to the order books in futures markets
Not really, or it may not matter. I usually have more difficult time filing ES option orders, but I usually trade multi-leg combos a few months out, which are generally less liquid than single or near-term options. ES futures options have higher commissions, require higher margin, have less available expiry dates, and different tax treatment than index options, so have much lower volume and aren't as popular as SPX options. I do trade both ES and SPX options near midpoint. To some people it may look like the exact midpoint, because when the ES/SPX price fluctuates then their order may get filled at their limit but it may no longer be a "new midpoint". Options orders aren't hidden, but bid/ask quotes are there only because market makers need to post them, and they do try to get the best price for themselves while not getting screwed in case of news/events. But they continually watch the incoming orders and compete for them. When you submit an order, there is a quick 100-millisecond auction between MMs and if your price is good enough then one of them wins, and may even give you better price than you asked. Otherwise your order becomes the best bid or ask/offer and even skews the mid. At that moment the previous "mid" doesn't matter because your order affects it and you've created a new "mid". At some point someone may simply match your price, or a market maker may fill it when they find another order or a hedge that still makes them a few bucks. Basically your order needs to be useful to someone else to get filled, and this has nothing to do with recent bid & ask. Most orders do get filled near the mid, the only question is how far from the mid. I sometimes get very good prices on multi-leg LEAP combos, other times I wait days without fills, then have to cancel my order as the price moved too far away. Obviously tighter spreads do help.