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polloponzi t1_iujo8b2 wrote

Reply to comment by mytendies in Most "Efficient" Options On The Market Today (How Should I Improve This? What Else You Guys Want to See?) by mytendies

>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?

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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

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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.

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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.

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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.

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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.

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