I have been trading SPX options on and off for a few years and daily for most of this year. I am used to the regular bid/ask spread to be 1.00 on SPX options priced between 5-10. The last few days I have noticed that it has grown to 1.20 on these same options. I have a copy of the cboe rules and can only find the spread size limits for equity options which have been cited here before; .50 for options priced 5-10. I also searched the cboe web site with no success. Obviously this increase in spread size to 120$ further complicates trading spx options and seems to be decreasing liquidity. Does anyone have knowledge of the applicable rules and/or insights into this apparent change? Thanks
Well, as far as I know, spx options have been one of the growing contracts taking away volume from oex....
I trade almost exclusively OEX and it seems to me that with the contraction of VIX, (except the past couple sessions) spreads have narrowed a bit. That would make sense if SPX is taking volume, but I think it's volatility related. If thats correct why is SPX getting wider? Maybe demand, maybe it's just "they".
I trade the SPs as well and have noticed the wide gaps. The only reason the spreads are as wide as they are, is because they can get away with it. I put out limit orders and step in front of them all the time. If more people did this, they would either have to tighten their spreads, or biz would suffer. Unfortunately, the volume is not yet sufficient for the masses to bring in the spreads, but it's coming...and so is Eurex.
I agree that the only way to trade these b/a spreads is to cut them. I have been doing that for years...... But, until now, did "THEY" keep those spreads limited to 1.00 out of their goodness or has there been a rule change allowing them to widen?? Its my impression that cutting the spread with better bids and asks occurs most of the time. What I have not seen is any change in the primary MMs behavior like tightening in response to this. Rather I get the impression they are happy to not trade unless they can capture almost all of the huge spread. I am pretty sure CBOE will retain their monopoly on the spx options.... so I don't think that we can look to EUREX to reduce our dealings with this THEY.
There is a very easy way to cut the spread, but you have to do it the old fashioned way and actually physically pick up the phone and call a broker in the pit. As a former MM in that pit, I can tell you that there is no way anyone in there right mind is going to publicly post a tighter market than the dollar or buck 20 you've been seeing. It's not because of the retail guy, but the upstairs institutional pick off artist that the spreads are wide. However, if you're able to call a broker, you generally will get an 80 cent wide market, and there's a good chance you can trade 20 cents inside that assuming you're doing less than 100 contracts. If you're doing more than that ---than pay up you cheap bastards Just kidding, Vega I'd be more than willing to answer more questions about this pit, as you may know I spent over 5 years in it.
One of the brokers I used to stand next to, the UBS broker, used to make fun of the MMs and call us liars. Why ?? He'd ask for a market, we'd say 15 bid at 16, he'd reply "At 16 huh, 15.80 bid "and we'd all go SOLLLLLLLLLLLLLLLDDDDDDDDDDDDDDD. He would then say, "why didn't you say you were at 15.80 ?" and we'd reply "cuz then you'd only bid 15.60 !!! " Vega I apologize for the poor punctuation, feeling lazy today
I do have one concrete question amid this discussion with and about THEY. The primary MM's auto-quoted b/o spread has gone from 1.00 to 1.20 in 5-10 $ spx options over the last week or so. Like I said above, until very recently and other than x week, it was pretty consistently 100$. Was there a rule change expanding the maximum allowable spread by 20c OR is it a change in the person or behavior of the primary MM?