Liquidity. Plus, 10% of a SPY fly doesn't add up to much unless you go for 10 contracts or better... at which point, you might as well do SPX. No. The mid is the midpoint between the bid and the ask; the nat is the last accepted bid/offer. Theoretically, hitting the nat should get you filled immediately, but IME that's not necessarily the case for flys, spreads, or any trades in low-liquidity underlyings.
I like my life a little more complex than the average bear, so while I agree with letting mistakes benefit you by never forgetting them, I also like to make sure that they don't stop me from doing what I need to do. Awareness works MILES better than fear, and careful consideration much better than black-and-white avoidance.
I just remember reading about MM's accumulating positions that eventually was just a bunch of flies spread out. Also Nassim's preface in "Lecturing Bird How To Fly" he was talking about how option premiums were priced efficiently way before Black-Scholes, "interviewed veterans who confirmed that option traders in Chicago priced 'off the butterfly', with 'no sheets' (i.e., no pricing formula)." "Going back to the late nineteenth century traders did much, much better pricing options before the option formulas were invented. The solid arbitrages were maintained (put/call parity, no negative butterfly, etc.). Traders, thanks to tinkering and evolutionary pressures, fumbled their way into a heuristic option pricing formula: Those who liked to short OTM blew up in time; those who bought them survived." - Nassim Taleb
Pre BS there was no option exchange. Options were traded OTC by a handful of dealers and prices were advertised on the back page of the WSJ. Only a couple of handfuls of names were traded and it was mostly spot date and price. Rarely were markets offered in puts and calls. If the market had rallied the prior day - most of what was offered were calls. The dealers were advertising prices to complete reversal and conversions. It was not uncommon for a market in an option worth about $10 to be trading $5bid/$15 offered and often there was no secondary market. If you really want to reminisce search the firm Filer and Schmidt. The dealers expected the CBOE - when it opened in April 73 to fail and few elected to join. Most were dead within a year even though there were no listed puts in the early years.
There were exchanges that traded options, but not an "official option exchange" like the CBOE, which was a first of its kind because of its standardization of options.. but lets go back even further. What was interesting to find, was America was late to the option gravy train. In fact, the U.S prohibited the trading of options for along time, regarding options as disruptive and dangerous, while other countries had been trading them for decades already. Options were traded on the Royal Exchange (London Stock Exchange) and at Antwerp of Bourse, as well as on the Amsterdam Exchange as early as 1680's. Calls and Puts were traded, but were called "refusals and privileges". Early definition of an option contract: "Gives the purchaser liberty to Accept or Refuse such shares at such a price, at any time within six months, or other time they shall agree for." While both calls and puts were traded, calls were traded much moreso, up too 80% of the "volume" was calls. Six months duration was the "standard" DTE, and the majority of options were traded at-the-money.. How amazing is that, in 1690 there was a merchant long some ATM calls in the Dutch East India Company.
Have you read de la Vega's "Confusion of Confusions", describing the first stock market - including options trading? Wonderful read; gave me a hell of a shock to realize just how little has changed from those beginnings.
interestingly, I literally just found out about this book last week. I have it now but haven’t read yet, only the preface. Now I know where we got the greek “Vega” from. amazing isn’t it? 1680s and options were being traded. I can’t even imagine how the process worked, but it makes you think about today’s age. I’m typing on an iPad with direct access to all the worlds markets in real time. We take it for granted.
Now all we need to do is somehow tie in a TV show hostess and a shitbox Russian car, and we'll be set for vol terms. The interesting part is that they started from nothing - no "previous art" - and worked out a complex, sophisticated system, the entirety of a stock market and all its associated mechanisms, in a few decades. Economic pressure is an amazing driver of creation and innovation, it seems.