Most "Efficient" Options On The Market Today (How Should I Improve This? What Else You Guys Want to See?)mytendies OP t1_iuigjmn wrote
Hi WSB, this table shows which options are most liquid and have the tightest spreads. I then calculate an "efficiency" value based on those spreads, the option pricing, and essentially how much of your profits will be lost to friction/slippage/commissions when trading that particular option.
I also include the expected move for "this friday" and each stocks "beta" when compared to SPY.
Is this helpful or too regarded?
How else can I improve this report?
qb_source t1_iuihsqi wrote
How are you predicting friction and slippage?
mytendies OP t1_iuijxms wrote
slippage is bid - ask / price of the option / 2.
It assumes you are going to pay "half" the bid ask spread to get in, and half to get out. Wide bid ask spreads = more slippage = less efficient.
I guess the word friction should not have been used and isn't really relevant. My b
qb_source t1_iuik4qs wrote
I assumed you were referring to the illiquidity making it hard to get the mid, thanks for the answer
mytendies OP t1_iuilkp2 wrote
going to try and work in "average daily volume" and consider open interest as well to give a probability of getting filled at that mid price. Not an exact science but let me know if you have any ideas/suggestions
qb_source t1_iuim3ro wrote
I typically factor in the margin requirements so I can come up with some sort of way of comparing the amount of premium for the amount of capital at risk.
For example, IWM and TSLA are high on your list but IWM has a much lower requirement
mytendies OP t1_iuinime wrote
Those margin requirements are broker dependent tho right? And just to be clear, it would be the same "capital at risk" but the "buying power reduction" would be different for each. Correct? Just want to be on the same page
qb_source t1_iuinv2s wrote
Yes they are, but generally they are lower for ETFs of broad indexes.
Edit: I think we are on the same page
mytendies OP t1_iuiodw6 wrote
Yeah maybe I can look at "beta" and make an assumption. High beta = more margin required.
Need to get IV rank on here as well.
My goal is to have this report indicate "these are the "best" options to be trading today" from an efficiency perspective.
qb_source t1_iuionrj wrote
It might be helpful to show if the underlying has dividends and if the underlying is a partnership or not, if you are going for efficiency in taxes.
Edit: corrected typo
mytendies OP t1_iuir354 wrote
school me on the relevance of a partnership. Had not heard of that one.
I wanted to add ex dividend date, div yield, and next earnings date.
qb_source t1_iuis46t wrote
By partnership I'm referring to LLPs, like REITs. I stay away from them because of the extra tax paperwork and the expenses that come with it.
I only mention them because of your focus on efficiency, specifically that as far as option trading goes, they are not worth it.
How the underlyings are taxed and how earnings are returned are additional ways to measure efficiency.
Indicating which underlyings offer dividends and how often and how much would be good too.
mytendies OP t1_iuisi0s wrote
But if someone day trades an option on a REIT and day trades an option on SPY the gains/losses are subject to different tax treatments?
unresolved-madness t1_iuk2gq0 wrote
By how wet it is.
StudentWonderful6155 t1_iuiy7o4 wrote
Is this your own personal report?
mytendies OP t1_iuj9dxq wrote
yessir. now its shared with you tho creating "our" report
StudentWonderful6155 t1_iujtozm wrote
I like it! I would love to see something like this daily
mytendies OP t1_iujyn0w wrote
ok working on it.
polloponzi t1_iujo8b2 wrote
>Hi WSB, this table shows which options are most liquid and have the tightest spreads. I then calculate an "efficiency" value based on those spreads, the option pricing, and essentially how much of your profits will be lost to friction/slippage/commissions when trading that particular option.
What can you do with 'efficient' options? How you take advantage of this information to earn money?
mytendies OP t1_iujrzbs wrote
fair question. A few others asked and mentioned they have no idea how to implement this info.
I will do a post on it and explain in detail why this matters
polloponzi t1_iujugyi wrote
If you want to do a detailed post then that is awesome, but otherwise just a comment with a summary on how you turn this info into a profit may be enough for me to understand the gist of it.
mytendies OP t1_iujz4te wrote
you need to transact on liquid options to make money. Period.
if you try to buy an option for $100, but can only get a fill for $105 and then try to sell it 1 minute later for the $105 you paid, but can only get a fill for $95 then... you lost $10 in 1 minute getting in and out. That is 10%
What most people don't realize is that this bid ask spread robs them of a large portion of their profits and it amplifies their losses.
​
now if you look at my chart you can see the "efficiency" column and determine the most liquid, most easily transacted, tightest bid/ask spreads.
In my example above, if you have a highly efficient option, you might want to buy it for $100, get a fill for $100 and then be able to sell it for $100. That is highly liquid and easy to trade.
Those are the options you want to be playing with.
polloponzi t1_iuk2z8w wrote
>you need to transact on liquid options to make money. Period.
>
>if you try to buy an option for $100, but can only get a fill for $105 and then try to sell it 1 minute later for the $105 you paid, but can only get a fill for $95 then... you lost $10 in 1 minute getting in and out. That is 10%
>
>What most people don't realize is that this bid ask spread robs them of a large portion of their profits and it amplifies their losses.
It seems to me you are looking to day-trade or swing-trade options.
I don't usually do that, I hold options for at least a week usually, so the bid-ask spreads don't really matter much to me.
When I want to day trade options I just trade the $SPX options that are by far the most efficient and liquid options you will be able to find. On top of that they are cash-settled so you can do all kind of spreads without worrying about pin risk or assignment. Check those.
Lucky-Apricot-1831 t1_iuk3stb wrote
Explains why it was so regarded when I tried trading gold using IAU options, and got REKT. Ty, very useful for regarded introspekcion.👌
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