index options spread question

My strategy involves trading Russell 2000 index options. A typical trade would be the purchase of an in-the-money call, for example:

Index price=683
640 Call Bid 45.00 Ask 45.80

Since the multiplier is 100, the spread is $80. However, in my limited experience, I've been able to buy with a limit order just below the ask (say 45.60) and sell at a limit just above the bid (say 45.20), thereby decreasing the spread to $40.

My question is this:

Is there anyone out there who trades in a similar style who can tell me how much they can consistently cut the spread to? For example $80,70,60,50,40,30,20,10,0?

Also, I realize the spread would be less with a futures contract or just owning the etf. However, I hold for several days and over many years I am concerned that a terrorist attack or other event could wipe me out, so I use options to limit my risk.

 

If you give the 2/3 of your spread then it is considered as fair deal..i.e 0.8/3=0.25 you can ask for bid+ 1/3 spread

 

Just another thought, you might want to check out mini Russell 2000 or IWM options. I haven't looked at IWM, but QQQQ options are so liquid, the spreads really come down.

You'd have to look at what the mini russell is. The mini nasdaq is $MNX.

 

Thanks for the tip. I will check out the spreads on mini Russell 2000 options. I will look into IWM options, too, but I think they are taxed as ordinary income, while the index options are taxed as 1256 contracts with 60%LT/40%ST.

 

All qqqq,spy,dia,iwm are considered as exchanged traded Fund and will be treated as indices in term of tax purposes.

 

Subtract the strike price of the call (640) from the current futures offer i.e. 683 and you have a differance of 43.00 Now add the price of the 640 put, i.e. 2.10-2.50 and you'll know what the call should be worth.

 

If you want to hedge stocks with either SPY /ES would you use 1 ES for every 500 shres of SPY? I got to that by taking last price of ES 1265 * 50=$63250/SPY Last which comes to about 500 shares.

Would you do the same for the QQQQ/NQ?

1677*25 / QQQQ last= 800 shares of QQQQ.

Thanks