I thought since it is basically QQQ * 40, that the pricing would match that. I guess the market makers widen the spreads on big moves?
So when you said anecdotally were comparing to SPX? I have noticed that the spreads for the equivalent number of QQQ contracts to ndx seems pretty good. Especially since QQQ options seem to have wider spreads. If a person can trade ndx it might be a good way to go.
Yes, I was comparing to SPX but also RUT. NDX does work. There have been (many) times when I have paid more than 50 cents in slippage when going form the mid for a spread and as I am thinking through maybe I have gone even higher (60-80 cents) but this is just going by memory, but there are times when you just need to bite it for the bigger picture. [BTW this is not every time, this is some of the bad times that I remember.]
Yeah, MM play their games but everyone wants to make a buck and MM provide liquidity. Sometimes I try a different strike ...
Possibly an influence, is you can get a 'finer' spread: SPY: 280/275 SPX: 2800/2795 Which could be useful for certain hedging needs.
checking out RUT today... wow, those are very wide spreads. is it always that wide? puts you at the mercy of the MM when it is that wide.
Few comments: Liquidity: SPY has very "tight" bid/ask spreads. This helps planning because one has a pretty could idea of the execution price. It also enables the use of market orders which are easier and can execute much quicker than limit orders. SPX, on the other hand, has a relatively wide bid/ask spread when compared to SPY. This means that limit orders are a must. That means some "bargaining" with the price and much slower execution. It is more time intensive, less precise and one never really knows if they received the best price. Some traders prefer ETFs like SPY or IWM due to better liquidity. What they often forget is the fact that Index options are 10 times bigger product, so 20 cents spread on SPX is equivalent to 2 cents spread on SPY. For example, spread of 10.00/10.50 on SPX would be equivalent to 1.00/1.05 on SPY. The slippage on SPX is usually no more than 10-15 cents which is 1-1.5 cents on SPY. Commissions: Buying less contracts means a significant difference in commissions. For example: if you buy one lot of 10 strike SPX Iron Condor, you will trade 8 round trip contracts. At $1/contract, that's $8 or 0.8% of the $1,000 margin. Buy 10 lots of 1 strike SPY Iron Condor - and the commissions jump to $80 or 8% of the $1,000 margin. Tax Treatment Differences: SPX tax treatment is significantly better than SPY. SPY has an advantage in LEAPS, but from a practical point of view, it can't even come close to the advantages offered SPX. Remember, it's not what you make it's what you keep that matters.
Agree with most of what you said Kim but I would not place market orders for a multi-legged option strategy on days like yesterday (1-2% down), or rather would never place market orders on any option strategy. However tight the bid/ask is, it can move quite a bit by the time the order enters the system.