There will zero natural demand in the ES options in the back months. You could cover the wings and leave the naked strangle. I agree that the individuals will show a mkt, but they can't enforce which you choose to cover first unless it would put you on call. A very real possibility that you may not have a mkt in the short combo, at all. I understand it's the principle with you, but why not simply trade the SPX or SPY? There you have a native combo order (you don't in the ES) and it won't be subject to a mark against a futures contract with zero-volume.
you can do the order on TOS but what is interesting they don't tell you what happens to your BP...its marked as N/A...as far as liquidity the DEC right now are very liquid. I haven't had any problem closing FOTM orders. However I haven't gone any farther out than 3 months. I had/have more difficulty in closing SPX spreads.
Not in dispute. I am just stating the obvious that it's marked to (illiquid) futures and cannot be traded natively. The SPX is not marked to an illiquid futures-mkt. I don't want to get into the ES influence on the SPX in terms of microstructure or very short term mechanics.
I'm arguing they are NOT "illiquid"....I wonder if Walt tried to leg into it by buying the strangle then selling the straddle...or the call side then put side, would he still run into the crazy margin calc? I guess what I'm trying to say is I think brokers are behind the curve as ES options are perfect for the small retail trader...SPX to big and hard to trade...SPY comission intensive. ES options can be traded 23/6...they are going to be the product of choice and brokers need to help not hinder.
So they are never illiquid? The combos were liquid nine months out during the flash crash? OK, I'll state it another way... They're marked to something that (last week) hadn't traded for a couple of hours on the one day I watched Dec13. Sure, the market is marked to the NBBO (Globex in this case), but there are no guarantees you're filled. There isn't a native order for the iron anyway. He'd have to trade it as two strangle orders. SPY trades, but it's not a derivative. The issue lies with the aforementioned difference. I assume that Jones wants the tax-treatment and I get that, but it's moot as it's going to be an inefficient application of capital at IB. I suggest that he opens an account at RJO.
Last week I filled three separate 50-lots in SPX at mid and it was instant. The "thump" sound effect was heard before I could minimize the screen. I've never been able to fill complex ES stuff at mid.
I'll give SPX a "look see"; however, I'm willing to bet that I will run into the same type of shenanigans as with ES... but perhaps I'll be pleasantly surprised. btw... the issue of legging out creating margin calls would never occur with IB. I've had large front month spread positions that disallowed me from legging out because of the impact on margin... If this "safety net" is built into IB for front month contracts, then it would apply to all months... I'm sorry, but either IB is archaic or nefarious with the treatment of back month options only 6 - 7 months out (I'm not talking about 6 - 7 years out)... btw... getting fills on Dec 2013 options are easy. I've never had a problem getting fills on far month contracts. Furthermore, I am completely convinced that arbitrage opportunities with SPY & SPX would keep the ES reasonably liquid on most occasions... Nonetheless, let me once again emphasize that the liquidity issue is irrelevant to the spread position I referenced (iron b-fly)... Walt
Legging out in the right order will not create margin calls but can still entail enormous losses if premiums or bid-ask widths have gone sky high.
OK, I thought it was an iron condor. You can trade natural flies and iron condors in equity index markets. Take it from long experience that the SPX is much better in terms of edge loss on complex orders. So trade the SPX unless you're after the tax benefit. I'll add that it's my experience that the edge loss is greater in the ES which mitigates the tax benefit, IMO. Not terribly indicative; but quote a 100-wide ES call or put fly and then quote the same strike fly in the SPX. The SPX fly will show a market, the ES will not. There are more guys than I can count that have been burned in back month futures. It's best to steer clear of trading derivatives of derivatives with complex orders. IB is being conservative. Inhibition through excessive haircut. Great idea and I applaud them for protecting ourselves from ourselves.
The position can cause the account to trade debit if you were to cover the short straddle and then miss the cover on the wings -- assuming the trade was traded to the limits of the account and at the debit-req. Say the wings implode before you're filled. Obviously much worse things can happen between covering the wings and then the body.