SPY options bid ask spreads

Discussion in 'Options' started by cafeole, Dec 20, 2018.

  1. Ayn Rand

    Ayn Rand

    Do you watch option prices? In many they slam the bid to the wall. Meaning - we do not want to trade here.

    Caveat - This is for individual stocks. Not sure if the same pattern is for indexes but would suspect they are but less extreme.
     
    #11     Dec 20, 2018
  2. ITM contracts will have wider spreads than the OTM contracts. The reason is higher delta means they're more sensitive to the underlying price moves, so the market maker has more hedging exposure to the underlying spread / liquidity.

    Also, I wonder if you were trying to close during the move yesterday after the FOMC (when they went your way)...those spreads were something special. :)
     
    #12     Dec 20, 2018
  3. qlai

    qlai

    I wander how people back test something like that!?
     
    #13     Dec 20, 2018
  4. What would you back test? When the spread is wider than theoretical value, the first (showing) bid and ask aren't very meaningful.
     
    #14     Dec 20, 2018
  5. qlai

    qlai

    I mean when someone backtests options strategies they must make assumptions on the fills.
     
    #15     Dec 20, 2018
  6. cafeole

    cafeole

    I wasn't. I don't trade FOMC days.
     
    #16     Dec 20, 2018
  7. prc117f

    prc117f

    Wow my ditm short 245 otm holy shit above and beyond
     
    #17     Dec 21, 2018
  8. cafeole

    cafeole

    I noticed something today in SPY options, 1 day to expiration. If the option is below 0.70 delta, the spread was the usual 0.05-0.07. So I watched a put strike with 0.67 delta just before a large downward price movement - when the delta went above 0.70 the bid stopped moving, i.e the spread kept widening until there was about 0.24 spread. The strikes that stayed below 0.70 did not widen. The result was would have been that someone buying this option would have made about 0.67x(price movement). It was as if the delta was fixed by widening the spread.

    IMO, this is highway robbery.
     
    #18     Dec 27, 2018
  9. Sig

    Sig

    Then make a market in options! If you figure out a way someone is legally making windfall profits in the market why in the world would you sit around complaining about it instead of joining in and exploiting the shit out if it?
     
    #19     Dec 27, 2018
    vegamedic and qlai like this.