So I never traded options before, I always been a buy and hold equity investor. However I was bearish on the market a few weeks back and I sold out of the money calls on all my holdings. One thing I did notice is the bid/ask spread is huge, even though the market moved in my favour I would make very little if I close out positions now.
We are taking options on very popular etfs, example VOO.
Another issue is once I entered a market sell on call options, I got a call from my broker telling me the “exchange” called them and asked them if I can make it a limit sell as there was no bid. Well I understand there is no bid to cross it with, why not keep it as a market order till a market bid comes in? Why does not the dealer provide bid/ask anyway, is not that their job…
Your broker saved you a** on this. Tell them thanks. Don’t ever place market orders on options. If there is no bid, they can just pay you .01 and you’re SOL. There likely isn’t anyone dedicated to making a market in these options. There is no pit and it’s so illiquid that no one cares.
I would highly recommend switching from VOO (S&P 500 etf) to SPY if you intend to write options. SPY is incredibly liquid and you’re likely going to see .01 bid/ask spreads all day long. In SPY, your market order would probably have been fine, but as a general rule of thumb, create limit orders.
Humans don’t place orders, the broker likely never even saw it. But fair point, it wasn’t really likely the broker who caught it (sometimes is). The market maker caught it and it went like this:
Market Maker 1: “Look at this trade, this is free money”
Market Maker 2: “How many contracts?”
1: “Only 1”
2: “Not worth it, we’ll end up having to bust it w/ the broker once the idiot calls in to complain. Gotta maintain the biz and keep that order flow coming.”
1: “Good point, I’ll wait for a bigger prize.”
EDIT: OP, not meaning to insult you, hope your questions were at least answered.
No insult, makes sense, explains why my broker was sort of laughing when he told me to make it a limit order.
I had just started doing this and I am not subscribed to live quotes so I could not see that there was no bid. Anyway I am learning slowly.
I had assumed that VOO was also very liquid since it was one of the top, but I guess SPY indeed is way ahead.
Thanks for all the help everyone.
On another note, I noticed futures on SPX trade on a discount to spot which makes sense as the div yeild is more than rf. While futures on SPY trade at a premuim to spot. What am I missing, Im thinking its something that has to do with divis. Like during the period in index will pay a divis while the etf will hold them for a few month. Thus if someone was to do a carry with the EFT they dont get the divs during the period?
^^^ So, I think you are talking about a call option on SPY. That’s not a furtures contract. Taking positions with options can mimic the exposure you get with futures contrats but the instruments are significantly different. Case in point, you can buy a “contract to buy SPX at a set price in the future” by buying a call option on SPX. You can also buy a futures contract to lock in a certain price of SPX using “/ES” (the actual future contracts on SPX). There are no futures contracts for SPY … just for SPX.
EDIT: To be perfectly accurate, since futures are cash settled and since the SPY ETF so accurately tracks SPX, you could say that /ES is also a future contract on SPY. However, one /ES contract would equate to a different amount of shares of SPY compared to SPX.
Well I use interactive brokers and if I type SPY I get a menu from which I select futures and I get a list of futures which appear to be changing in price etc… Why cant there be a future on SPY? Cant you deliver the the etf at a set date for a set price?
There are (were?) futures on various single stocks. However, no one really trades these, since it is typically much easier to just trade the stocks themselves. Futures are more common for underliers that have some price, but cannot be practically traded themselves - for instance S&P 500 index where futures avoid the need to trade 500 components, or crude oil where you would otherwise have to buy actual barrels of oil.
If people really want to trade forward positions on stocks, they normally use reversal/conversions (for instance, buy a call, sell a put of the same strike), or enter into OTC contracts.
Regarding settlement, it depends on the contract (CME or whatever exchange will have a description). But generally, yes index options are cash settled, and single stock things tend to be stock settled.
OP, did you check Charterholder by mistake? Your actions embarass me. Take it as insult if you like. That’s ridiculous. Reminds me of when a supposed petroleum engineer couldn’t calculate a hydrostatic head. Get in the game.
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Rather than making such comments, you could contribute with your know how.
Can you code in 15 languages, have you created facial recognition software? Meh you pass an exam that can be gamed using Schweser and now think you are all that. This is exactly what gives the charter a bad rep.
First, cry my a river. Now, the same can be said for an ATP rated pilot. However, if that pilot attempts to fly a type of aircraft in which he or she has received no training, someone needs to call him or her to the table, probably the FAA. Furthermore, there is no way an ATP would not know better. The pilot knows education should be sought before acting. Fairly certain that the CFA designation doesn’t imply a minimum level of fitness in computer programming. Not even one language. Why did you go through a program that you hold in such low regard? I can’t argue that the test can’t be gamed, if you are exhibit one. What program would you recommend to those that would like to demonstrate a minimum level of fitness in the language of finance?