34
votes
Accepted
How is it possible that these deep ITM stock options on DISH went from 52,000 volume, 550 open bids, 550 open asks to being completely dead overnight?
If you look at DISH's dividend history, you can see that on 20111101 DISH declared a special $2/share dividend payable on 20111201. The ex-date for that 8% dividend was... 20111115. The $2/share drop ...
- 950
12
votes
Accepted
Can one earn only converting assets with different spread?
This is called triangular arbitrage and is not new to crypto - it existed in the currency markets long before crypto. Note that the amount of spread must be larger than the transaction fees to make ...
- 140k
7
votes
Why divide by ask rate to get the spread?
Mathematically it's arbitrary - you could just as easily use the bid or the midpoint as the denominator, so long as you're consistent when comparing securities. So there's not a fundamental reason to ...
- 140k
6
votes
Accepted
Buy on bid sell on ask
You won't earn money trading on the spread, you will lose money.
For there to be a transaction the bid and ask price will need to match.
So to buy you need to match the lowest ask price, and to ...
- 21k
6
votes
Accepted
Why are vertical option spreads level 3, requiring margin?
If the short leg is assigned early, the broker cannot immediately exercise the other leg, because the assignment notification process occurs overnight. The offsetting exercise obtains the needed cash ...
- 30.2k
6
votes
Can one earn only converting assets with different spread?
You are describing the theoretical financial concept of 'Arbitrage', which represents a situation where you can buy something in one market and instantly sell at another market for a premium, with no ...
- 42.9k
5
votes
How do market makers profit from the bid-ask spread when bids are almost always lower than asks?
This income comes from fact most people don't want to wait and just buy/sell on current price. While market maker is ready to wait and buys/sells on a better price. Here is a simple example:
1) MM ...
- 151
4
votes
Accepted
Understanding the visual representation of a Calendar Spread
I've seen the plots for Call Spread Inequality, Put Spread, Butterfly, and some others, and this is the first time that the line showing the outcome of an option is not made of straight lines.
The ...
- 76.9k
4
votes
Accepted
Value of a call option spread
On expiry, with the underlying share price at $46, we have :
the $45 call has an intrinsic value $1 which equates to $100 = 100 x $1.00
the $40 call has an intrinsic value $6 which equates to $600 = ...
- 6,430
4
votes
Accepted
How does a limit order work for a credit spread?
As you probably know, a credit spread involves buying a call (or put) at one strike and selling another call (or put) at another with the same maturity, so you're dealing with two orders.
Your broker ...
- 140k
4
votes
Accepted
Exiting a butterfly spread is hard
Stocks whose options are illiquid can be problematic for getting fills at the midpoint or better. This also holds true for any series that is illiquid (deep ITM or far OTM options as well as newly ...
- 76.9k
4
votes
What's the difference between a commission fee and an artificially inflated spread when executing a trade?
What's the difference between a commission fee and an artificially inflated spread when executing a trade?
Conceptually - none. That's how they make money. Practically - they make it seem like they'...
- 181k
3
votes
How to determine if a bid-ask spread is "good" or "bad"?
All B/A spreads are bad because the stock must move that much for you to break even, ignoring commissions. Both are part of the cost of doing business, as are borrow costs for shorting. The ...
- 76.9k
3
votes
Calculate Plus 500 Spread payment
Ok, there are a few things to say here.
If you don't understand a charge on your account, then you should be asking the company, not a bunch of people on the internet.
You need to review your ...
- 309
3
votes
Accepted
In over-the-counter markets, shouldn't price takers attempt to match each other's prices?
Yes, a price taker buys at ask price and sells at bid price and if the market maker is on the other side of the trades, he pockets the bid-ask spread. Note that trades means a trade at the bid and a ...
- 76.9k
3
votes
Accepted
Failed Iron Condor while market price was under Short Call Spread
Every broker has some risk-management that will intervene in certain situations. A common situation that gets managed by the broker is when a spread is in danger of expiring with one leg ITM as was ...
- 70.8k
3
votes
Failed Iron Condor while market price was under Short Call Spread
There's some missing information in this.
Was the underlying near or even over $412 during the day? If so, you should have dealt with the short call yourself yesterday, if not sooner.
You sold the ...
- 76.9k
3
votes
Accepted
When I buy a option spread with different calendar dates, should I close every leg manualy?
Your position isn't clear. The first 4 option positions listed are a pair of short horizontal spreads, not diagonals.
A diagonal spread involves a long and short position in two options of the same ...
- 76.9k
2
votes
What do stock market index future bid/ask quotes mean?
Well, futures don't have a "strike" like an option - the price represents how much you're obligated to buy/sell the index for at a specified date in the future. You are correct that there's no cost ...
- 140k
2
votes
Accepted
Backtesting daytrading strategy, how to handle the spread?
Without using depth data, the best approximate would be a function of volatility and liquidity. The weights would depend on your size. Without going this far, the simplest method would be to wait for ...
- 604
2
votes
Accepted
Which spot Treasury bond is used to calculate this high-yield spread?
See Nick R's answer for the explanation of the concepts.
If you want to find out whether it's the 2 year, 3 year or 10 year spot on the treasury curve that is being used as the risk-free yield, you ...
- 2,197
2
votes
Which spot Treasury bond is used to calculate this high-yield spread?
The spot yield curve is not a chart of a single treasury bond yield - e.g., 2year of 10 year. The spot yield curve is a graph of zero-coupon bond yields plotted against time. For example, to obtain ...
- 6,430
2
votes
Buy on bid sell on ask
Yes, this trading algorithm is called market making or more generally providing liquidity. In principle, the apparently free money is compensation for helping the markets to be liquid. The more ...
- 15.1k
2
votes
How do market makers profit from the bid-ask spread when bids are almost always lower than asks?
Your fundamental understanding is correct. The problem is that you're just not connecting a few of the dots.
Consider your airport currency exchange. Think of it as 1.32 CAD is the bid and 1.33 ...
- 76.9k
2
votes
How do market makers profit from the bid-ask spread when bids are almost always lower than asks?
It’s the other way around: if it’s $100 bid and $101 ask the MM is asking for $101, i.e., offering at that ask price.
- 1,406
2
votes
Accepted
Bid ask spread and last price
During trading hours there are three numbers (the bid, ask and last price). The NBBO quote (USA) will always be the highest bid and the lowest ask.
The last price quote is always the price of the last ...
- 76.9k
2
votes
Riskless Principal - how does it work?
The Investopdia article doesn't make a lot of sense to me. This one does:
Riskless principal transaction means a transaction in which, after having received an order to buy from a customer, the bank ...
- 76.9k
2
votes
Should I consider the bid-ask spread as part of the transaction cost of a market order?
What you pay for the security when you buy it is the cost and what you receive for selling it is the proceeds. These are the numbers that you 'record' and they are used for determining P&L, ROI, ...
- 76.9k
2
votes
Accepted
Is there any difference between placing a "buy & sell call option" & "buy & sell put option"?
What you are comparing is a pair of bearish vertical spreads.
The first step is to understand the Synthetic Triangle where:
s + p - c = 0 (stock + put - call) ... where (+) means long and (-) means ...
- 76.9k
2
votes
Broker executed market order far outside spread
A market buy order means "buy at whatever the market is currently asking for" which is the ask.
It's possible you got front-run (someone else took the ask before you could) or the ask that ...
- 140k
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