Bid/Offer spread?

Discussion in 'Options' started by Bogan7, Apr 20, 2007.

  1. Options gurus out there i have a question is it possible to reduce the edge the option market makers get? It is just that the spreads they price are so wide!!!

    eg may CSCO 27.5 calls are priced 55/60 is it possible to trade inside this price or do you simply have to give up this every time?

    Is there any way to take advantge (prob not) of this

    Thanks in advance
     
  2. hopback

    hopback

    Route to IB.
    You can get filled in pennies but you still have to bid/offer in standard increments.

    or, trade a stock on the penny pilot program
     
  3. MTE

    MTE

    .05 is the minimim tick so you can't go below that. There's a penny-pricing pilot program running on several stocks, which is designed to test the possibility of going to pennies in options, Google "penny-pricing pilot program" or check CBOE's website.

    At the moment, the only way to try to shave off the .05 bid/ask spread in stocks, which are NOT in the pilot program, is to route the order to the exchange that offers PIP (price improvement). I know BOX was the first one to introduce this, but I think other exchanges now offer it too. Also, and someone please correct me here if I'm wrong, InteractiveBrokers offer trading in pennies as part of some internal matching system, but check with them for details.
     
  4. Guys thanks very much for the quick and informative replies.
     
  5. No, if you have an account at IB you can bid
    and offer on all stocks in pennies. You will only
    be filled internally on the Timber Hill book unless
    an external offer (bid) crosses your bid (offer).

    No-one but other IB account holders will see
    your bid or offer. Timber Hill claims to handle
    about 25% of the buy-side options volume,
    so you will get filled occasionally.

    There are no cancel fees for these orders so
    you can easily stay best bid or offer in the
    IB/'Timber Hill system.
     
  6. hopback

    hopback

    I guess it depends on your broker/platform.

    I'm not an IB customer but I have the ability to route to them. but only in standard increments.
     
  7. They also round your order to the nearest nickel (down for your bids, and up for your offers) and send it to an exchange, so there's a chance that you can get filled at that (better) price too.
     
  8. its just a nickle...
     
  9. a nickel = $5 / contract

    avg size is prob around 10 contracts.. $50 / trade..

    very significant.
     
  10. Significant if you are trying to flip the contract immediately. If you are doing 10 contracts, a nickle is the slippage for sure but it should not be a barrier to making profits on options.

    That is the price you pay for leverage of options. Penny pricing is a great step up but it is not on all options or outside IB.
     
    #10     Apr 22, 2007