The bid/ask spread on options

flopbucket

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Mar 12, 2007, 3:52:40 PM3/12/07

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Hi,

If I want to buy an option that is price at, for example, 3.20 x 3.50,
if I place an order to Buy to Open at 3.30, does the market have to
reflect that? i.e. will the quote change to 3.30 x 3.50 as it would
on equity orders? I notice this does not seem to happen for me (I am
currently using ETrade). Is this something with the way ETrade
handles the orders or just the way it is (like equities use to be)?

Thanks

arthur

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Mar 12, 2007, 5:57:33 PM3/12/07

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that would become a bid but might not be the best bid at the open.

personally I would not use non option brokers when dealing with
options.

a

On 12 Mar 2007 12:52:40 -0700, "flopbucket" <flopb...@hotmail.com>
wrote:

es330td

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Mar 12, 2007, 5:08:26 PM3/12/07

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On Mar 12, 5:57 pm, arthur <trash.all.s...@xoxy.net> wrote:
> that would become a bid but might not be the best bid at the open.
>
> personally I would not use non option brokers when dealing with
> options.
>

Can you elaborate on this? I use Scotttrade for handling my
investment account and I know they do options (rather cheaply.) If I
cam going to get more into options should I not be using them?

TIA

arthur

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Mar 12, 2007, 8:00:58 PM3/12/07

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thinking commissions wrt options is to buy shoes based on the price of
shoelaces. Try computing youroption cost based on the bid ask spread.

scottrade and the rest of the mainstream online brokers are moronic
choices for options. imo OX runs circles around ST even for equity. i
have no personal experience with TOS or IB but many like them for
various reasons.

a

Dr Tormento

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Mar 13, 2007, 6:04:51 PM3/13/07

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"flopbucket" <flopb...@hotmail.com> wrote in
news:1173729160.6...@q40g2000cwq.googlegroups.com:

Some quote sources require bid sizes of at least 10 contracts before they
will display them. I use IB as my broker and their software displays even 1
contract orders. Regardless of what your quote source displays, your bid at
3.30 will have priority over all lower bids.

es330td

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Mar 14, 2007, 12:40:15 PM3/14/07

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On Mar 12, 8:00 pm, arthur <trash.all.s...@xoxy.net> wrote:
> Try computing your option cost based on the bid ask spread.
>

Can you explain this? The extent of my options experience is covered
calls so for me the commission was key, especially since I started out
doing just one contract at a time. A $7 vs a $28 commission is a HUGE
difference when you sell a call at $1.00.

arthur

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Mar 14, 2007, 5:02:40 PM3/14/07

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ouch. move to OX, TOS, or IB

a 5cent bid ask spread is $50 if 10 contracts and that is a cheap
spread.

es330td

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Mar 14, 2007, 4:33:56 PM3/14/07

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On Mar 14, 5:02 pm, arthur <trash.all.s...@xoxy.net> wrote:
> ouch. move to OX, TOS, or IB
>

I think you missed what I was saying (or maybe not.) On a $25-30
stock I'd sell a slightly OTM call at around 1.00, netting me $100 -
$8.25. At numbers that small it made a huge difference. Since I was
OTM the strike was high enough to cover commissions if it did go up
and this was in an IRA so I didn't care about cap gains.

> a 5cent bid ask spread is $50 if 10 contracts and that is a cheap
> spread.
>

I don't think you got my question. I understand bid/ask spread. I
don't understand how that comes into play in picking a broker. Here's
an example: the Apr MSFT 27.50 bid ask on quote.yahoo.com is
$0.69/$0.72. On OX under the virtual trader the spread is .67/.69,
one cent smaller. What does the difference in spreads mean to me an
an investor in the context of your statement?

arthur

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Mar 15, 2007, 1:58:15 AM3/15/07

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On option at a time is costly when the broker has a flat minimum
charge. On very active options, option prices have moved to what is
now called the "pennies". On all the rest it is 5cents.

My point was that commissions can be a small part of the cost. Brokers
specializing in options do it all.

I do not have a clue re etrade and do not have the problem of which
you are asking.