How Can It Be That The Spreads Are So Wide on OEX Options?

Discussion in 'Options' started by birdman, Mar 21, 2003.

  1. birdman


    I'm new to following index options ... at the close of day 3/20/03 OEX was trading at $449.92

    In the money call options at strike price $445. were bid at $3.30 while the Ask was $8.10

    I must be missing something ... How can this be? Why such a huge spread? How do OEX option traders make money with a spread like that?

  2. lrm21


    You trade with Limit orders for one. Also you trade very carefully.

    here is someone who has had some decent success trading OEX options. Although he has had a bad beat this month.


  3. I have wondered the same thing: How come QQQ options have a decent spread, whereas SPX and OEX options seem to have one market maker only? Does anyone know details?
  4. white17


    OEX is proprietary to the CBOE. Thats the big reason for the huge spreads. I think another reason is obviously the risk involved. This thing can move quickly due to futures on S&P.

    If you saw 3.30 x 8.10 or something like that you must have been looking at a screen after the close. I am guessing you are talking about March options in your example.

    You can watch the spread get larger as the premium increases. Example; last week I bought the April 430C @ 8. The spread at the time was approximately 7.80 x 8.70. That same Call today was 30.00 x 32.50

    I like the OEX and you can make some money there but the spread is truly awful.
  5. Lack of interest, why do you think?

    You obviously didn't trade the OEX pit in the late 80's and Early '90s at the CBOE. It was the cock-of-the-walk.


  6. "I like the OEX and you can make some money there but the spread is truly awful"

    i never play the oex. im it possible to get between the spread on these?
  7. rs7


    Exactly right. I was a MM on the CBOE in the late 80's. There were hundreds of guys in the OEX pit. More OEX contracts traded than all the other contracts combined.

    Now, I would venture to guess the pit is virtually empty. For the reasons already stated. It's proprietary in an environment of competitively traded options (ECN's), there are many more tracking instruments that did not exist then (QQQ's, SPY's, DIA's), And options on them. And the decimalization of everything has made being a MM an almost impossible career.

    I have a friend on the PHLX now, who went from making millions before decimalization, to being ready to just walk away.

    In the late 80's a seat on the CBOE was going for over $7,000 a month. From what I have heard, they are virtually free now.

    And yes, you CAN get fills between the bid and ask if you are patient. Very patient.

  8. abba231


    I don't regularly follow the OEX options, but it is my understanding the the dynamics/market/trend are not too different than the SPX options (or cash Euro CBOE options) . I recently read a piece of research from GS that was focused on US derivative markets. Surprisingly, SPX options trading showed a substantial peak in '96-97 (by dollar volume) plateaued, but have recently drifted up. Really, within the derivative markets, the primary losers of dollar volume the past few years have been the pit SPs (which obviously doesn't directly hurt the CBOE) to the E-mini, which posters here know so well. Acutally, the mini and the SPX CBOE options showed a similar level of dollar volume in '02 (if I remember correctly).

    My non-quantified/non-verified opinion has been that while the CBOE has suffered from the proliferation of other index exposure vehicles (SPYs, E-minis), they have suffered considerable more from the growth in volume in the ISE in individual stock options. Further, to say that SPYs and other index securities spell the demise of the CBOE seems a bit naive. What exactly are SP futures? When did they start trading?

    I further believe this has been a catalyst for the "OneChicago project."

    ****Begin Edit****
    If you are transacting at the quoted spread, YES you will soon be "toasted." Plenty of private market makers can be had.....SUSQ often makes $1 wide private markets in the SPX, plus improvement if the market provides such....
    ****End Edit****
  9. rs7


    Nor do I. Actually I haven't looked at them in quite a while. But from what I have read here about the spreads, I am kind of stunned.

    When I was a MM, the typical spread was 1/16th on the close month, near or at the money options.

    To hear about $5 spreads is amazing.

  10. white17


    Absolutely !
    #10     Mar 22, 2003