I just opened an account at IB to test out their services, everything looks to be going well. I am planning on using their services to begin my journey into options trading. I have never traded options before and I am very curious about the liquidity of the market. My question is this: How hard is it to get filled for orders that are Out of the Money? I've been reading about specific options strategies that I find to be very interesting, but I am trying to find out how easy they are to implement... Let's say that I was going to try a simple vertical spread. Is it easy to get filled even out of the money? or do I have to wait for market forces to manipulate the underlying stock closer to strike prices of the options that I'm trying to sell? Thanks in advance!
I have another question. I was browsing the Chicago Board Options Exchange website (www.cboe.com) and did a lookup on recent equity options prices for "CSCO." What I can't understand is what seems to be a divergence in "last sale" data. Here is an example: Calls Last Sale Net Bid Ask Vol Open Int 01 Dec 5.00 (CYQ LA-E) 14.60 pc 0 0 0 135 01 Dec 5.00 (CYQ LA-A) 15.50 pc 0 0 0 135 01 Dec 5.00 (CYQ LA-P) 14.50 pc 0 0 0 135 01 Dec 5.00 (CYQ LA-X) 0 pc 0 0 0 135 01 Dec 5.00 (CYQ LA-8) 14.90 pc 0 0 0 135 Would someone please explain the divergence in price? The only thing that I can think of is that the data represents different Exchanges. This seems to me to be a reasonable explanation. If this is the case, is there any way to capitalize on what seems to be a market inefficiency by routing orders to different exchanges etc.? Once again, your comments / help is much appreciated
OTM option liquidity is totally dependent on the product, time to expiration and a number of other factors such as how far out of the money. Typically the most active options trade in the front months at and slightly out of the money. If there is a bid/ask displayed on your screen and the market you plan to route to is under autex or electronic (ISE) you will get virtually instant fills. as for the differences you see in price on your second post, EAPX8 it looks like they are the different exchanges. (CBOE, AMEX, PSE, PHLX and ISE). For IB, I recommend that you use Best as it will show the best composite price across all exchanges.
Def is right... and IB is the way to go with equities and options. One reason for the price difference is likely to be the time of last execution. In your example, it is possible that the outside prices were prints from much earlier in the day - when the underlying was trading at a much different price. That exchange may have been "away" the rest of the day. To answer your other question about capitalizing on the differences; the outside prices are usually worse than National Best Bid/Ask, thus there's no advantage to buying from one exchange and selling to another.
As a general rule, consider option price as a guage for the spread. For example a $500 option will often get a $20++ spread while a $200 option somewhere near $10. Actively traded option can also has smaller spread, it really depends on the option As option approach expiry, options price gets cheaper and spread follows. Actively traded option can have smaller spread as there are more retail investors filling the spread. To identify a Market Markers for a particular option, check the spread between 2 large bid and an equal large ask size. This should be the minimum spread you will get for that option (assume the underlying does move a lot). Sometimes you will get smaller spread from a retail interest but the MM will always give a better indication The minimum spread for any stock options is $5.
Thanks, that was helpful. I am currently trying to find decent options software. I want something that will help me to keep track of my trades and is not cumbersome. Any ideas?
I do this, but over the past few weeks I've been having an increasing number of incidents where when I place a BEST limit order it's assigned to PHLX, even when PHLX isn't providing a quote for that side of the order. But there's another problem: a good percentage of the time, when I try to change the limit price or cancel the PHLX order, it gets "stuck" (magenta or blue) and I have to phone IB to forcibly cancel it. Sometimes they can cancel it, sometimes they can't; if they can't, you need to keep an eye on it because if the price falls through your limit, even hours later, it'll get executed. What I do now is, if PHLX is one if the listed exchanges for a particular option, I set up a montage of all the exchanges and direct my order manually.
I have noticed this as well. The PHLX phone lines go down from time to time and IB has a hard time getting thru to them. I have had a number of option trades execute on PHLX in the same manner you describe. I would suggest checking the exch listing the best bid/ask using TWS, then either hitting them or routing directly to a non-PHLX exchange if you want it to sit. The PHLX situation is rare. It has happened to me a few times over the past few months. BEST works well a very high percentage of the time.