I've just started trading options (on paper) and one of the ideas that really caught my eye was the credit spread. However, I'm blown looking at the spreads on QQQQ & SPY options and I don't think I can make this work. So how do you guys play this trade or do you even use credit spreads at all. Also, how can I limit the damage of the spread and get a better price (if this is at all possible). P.S; I've never really have worried about bid ask spreads before cause I've always been a position trader and never cared about the pennies.
You're right, the b/a spreads for options are much different than the spreads for stocks (read, much crappier). I think this makes day trading options a losing game. With that, I would position trade options and you have a few things that you can do. First, you can "leg" into a spread. In other words, buy the components individually. This could allow you to get a past some of the b/a spread as the underlying wiggles around. You can also attempt to split the b/a of the entire spread or each leg. Things are slowly but surely moving in the right direction though. Interactive Brokers now works with options exchanges that support penny options pricing. I've seen some of these spreads close in a couple of pennies. Again, it's not a major improvement yet, but it's certainly heading in the right direction
Try the SPX, NDX, RUT and GOOG for good credit spreads. You can get far enough OTM for safety and still get a decent premium out of the spread. Also as mentioned above... I usually will enter each leg separately to get the best prices.