Sunday, June 4th, 2017

How to hammer SPX orders home

Having difficulty getting in and out of SPX orders? Frustrated with executions? Calling your order desk and debating them only to hear that you to need execute orders at the bid and ask prices ? What a bunch on nonsense that is. Well you are not alone.

If you are going to trade SPX, RUT or NDX try this method it will work.

SPX was a nice product to trade till they changed their strategy of making money. The SPX still trades on the CBOE floor and the arcane and redundant way market makers handle these orders. Who is on the other side and what the market maker is willing to cut you depends on your order execution. Hence  this type of retail trading has become very difficult and almost impossible to execute orders at times.

Here is what happens with SPX. These options trade at wide bid and asks. So wide you can drive a Mac Truck through them. The option expiration day is another spectacle of endless greed. The bid and ask prices become so wide that you can almost cry on your keyboard.

Here is an example of SPX options spread. Look at the bid and asks prices. Please click on chart to enlarge.

Take a look at the 1300 puts they are priced at 6.60 bid and 8.00 ask on a Tuesday morning with 9900 open interest. The mid price is 7.3 which give or take .05 cents would be a normal transaction to execute.  The volume early in the morning is just 17 which will pick up later in the day to 1000s. If you tried to execute these orders at mid prices you will never get filled. The reason being the market makers want you to come near there bid and asks prices and not the mid prices which which will give you proper executions.

Let us suppose you have a spread to execute, it wont execute near mid prices. If you have seen this difficulty of executions you are not alone. Its is a matter of simple greed. They just want you to cave in 50 cents, $1 from mid prices and take the trade while you sit there and wonder why that is.

So how do you overcome these odds ? Its actually very simple, not complicated at at all. You need use some of that Greed fighting Kung Foo. It throws off the greed, and makes some sense. Here is how you can hammer SPX orders home everyday, and every morning, and even on options expiration day. Its a single step process.

Lets suppose you want to sell a 1300 put. You take the wide bid and ask and take the mid prices which will be 7.30 sell only 1 put at a time. When you place that 1 put order at 7.30 the bid and ask now contracts to 6.60 and 7.30 which is lot less than 6.00 and 8.00. You will get instant executions. It will work 90 percent of times unless you are trading options which are fairly illiquid and you will have to wait a long period of time. The executions are instantaneous. You are in and you are out.

The reason this works because once you place your single lot order with just 1 put or may 2 at the most and you have narrowed that Greedy market makers bid and ask prices he will have to show that on the screen by law. Now the large buyers who are trading bigger contracts, will also try to execute at those narrow bid and ask prices. That makes the market makers greedy business unbearable. Those people now have to be executed at narrower bids and asks which what it should be in the first place. When the market maker loses those wide bid and ask spreads they loses more at hand and his business gets thrown a curve ball. Therefore, they will execute your single order quickly and get you out of there in a hurry and go back fleecing others.

Try this practice when you are experiencing difficulty in executing orders on any liquid index SPX, RUT or NDX. I have done this successfully over a number of years and this the secret I want to share with you.

Good luck, and spread the word, share this article with your friends and their friends and everyone you know.

Comments

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