Concerning SPX Going off the logic that lottery ticket buyers lose and lottery ticket sellers win, selling deep OTM SPX butterflies and condors seems attractive - at least on a demo account. But how practical is this in reality? Looking at the spreads on the chains, most of them have pathetic values, but sprinkled in there are some spreads that have a midpoint of .10 or a little higher. Getting 0.10 of premium would be the barest minimum to make it worthwhile for a smaller trader. Based on TOS commissions, if you sold a single butterfly for .10 of premium, you'd basically be risking $400-$1000 for every $10 of premium you receive. Out of that premium, you'd be paying out $6 in commission (assuming you just let the contract expire and don't buy it back), so you would be gaining $4 of actual profit for every $400-$1000 risked, if it expires OTM. With 8 days to expiration, some of these spreads are up to 150 points out of the money. Most are not greater than 100 points out. However the liquidity appears to be awful (at least according to the TOS demo), with volumes and open interest often at less than 100, or even 50. A few questions related to these facts: 1.) I've heard about hidden liquidity and that (at least with TOS) you don't get to see all of the SPX contracts that are out there on your computer screen (options that are floor traded for example?) Is this true? Is SPX more liquid than it appears? The liquidity seems terrible compared to SPY. 2.) These deep 0.10 OTM butterflies and condors, are they really that available to the smaller trader, or is the liquidity just too poor, or do the big guys snap them all up? Would an order placed to sell at a price of 0.10 likely just sit around unfilled? 3.) How and when are new SPX contracts actually created? I'm assuming a new contract would be created for a buyer at a strike of his choice if he offers the right price (even if there is no liquidity at his chosen strike) but what about a new interested seller? I assume that the seller will just have to wait until an actual buyer comes around and wants to take the opposite side of the trade? Am I correct? Or will market makers satisfy the seller of premium by creating new contracts for him to sell? 4.) What is considered a large SPX order? 10/20/10? 100/200/100? 1000/2000/1000? And at what level do they become difficult to fill in their entirety? As a new trader I would obviously start small with a few individual 1/2/1 butterflies and condors and work my way up, because if I can't grow an account with a small amount of money I won't be able to grow it with a large amount. 5.) Buying a front month VIX call (at a strike of around 20-35) for a basket of short butterflies and condors - Is this very helpful? 6.) Are there other indices that are more liquid than SPX? Thanks in advance for any insight you can offer.
In my opinion you would be picking up pennies in front of a bulldozer. My opinion though, as others will disagree. I've sold OTM credit spreads on ETF index puts (not SPX though), yes you collect a few cents, but ultimately you risk so much more, far too much. There are much better ways to risk your money, and make it work for you, in option trades.