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Tuesday, March 3rd 2020

Traders Complain About Options Market Width: Here Are The Worst Offenders

ORATS publishes market bid ask width in implied volatility terms and compares the recent liquidity in the market tumult compared to before.

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Summary

Traders have been complaining about the wide bid-ask spreads in options markets during the recent market downturn. ORATS has published a table of the worst offenders, with Citi having the widest spread at 9.9 points in implied volatility terms, 25 times wider than a week earlier. The S&P 500 Index (SPX) was also a point of concern, with the S&P 500 ETF (SPY) having a bid-ask spread 4.5 times wider than SPX. Data for this study comes from the ORATS data API.

We are hearing complaints from our clients about how wide the markets got on options bid ask spreads during the past few days of market meltdown.

On Friday, February 28th the market down about 3%, the market widths reached their apex. In the table below, we list the worst offenders that day ranked by change in market width in implied volatility points from February 20th, the day before the market started falling.

 

Citi (C) was the worst offender with the bid ask width in IV terms of 9.9 points which was nearly 25 times how wide they were, just 0.4 IV points wide, a week earlier. Exxon (XOM) was 12 times worse, Russell ETF (IWM) as 11 times as wide as was Nasdaq 100 ETF (QQQ) and Walmart (WMT), and SPX was 10 times as wide.

We heard particularly about the S&P 500 Index (SPX) and those traders had a point. The S&P 500 ETF (SPY) increased 4.5 times compared to SPX increasing 10 times the width.

Virgin Galactic (SPCE) was the best of the top 100 names by options volume up only 10% more than normal. Tesla (TSLA) markets were relatively good up only 20% more than normal.

Data used in this study comes from the ORATS data API. This data is available for subscription along with many hundreds more data points as described in the documentation here: https://docs.orats.io/datav2-api-guide/

Disclaimer:

The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors.

All opinions are based upon information and systems considered reliable, but we do not warrant the completeness or accuracy, and such information should not be relied upon as such. We are under no obligation to update or correct any information herein. All statements and opinions are subject to change without notice.

Past performance is not indicative of future results. We do not, will not and cannot guarantee any specific outcome or profit. All traders and investors must be aware of the real risk of loss in following any strategy or investment discussed herein.

Owners, employees, directors, shareholders, officers, agents or representatives of ORATS may have interests or positions in securities of any company profiled herein. Specifically, such individuals or entities may buy or sell positions, and may or may not follow the information provided herein. Some or all of the positions may have been acquired prior to the publication of such information, and such positions may increase or decrease at any time. Any opinions expressed and/or information are statements of judgment as of the date of publication only.

Day trading, short term trading, options trading, and futures trading are extremely risky undertakings. They generally are not appropriate for someone with limited capital, little or no trading experience, and/ or a low tolerance for risk. Never execute a trade unless you can afford to and are prepared to lose your entire investment. In addition, certain trades may result in a loss greater than your entire investment. Always perform your own due diligence and, as appropriate, make informed decisions with the help of a licensed financial professional.

Commissions, fees and other costs associated with investing or trading may vary from broker to broker. All investors and traders are advised to speak with their stock broker or investment adviser about these costs. Be aware that certain trades that may be profitable for some may not be profitable for others, after taking into account these costs. In certain markets, investors and traders may not always be able to buy or sell a position at the price discussed, and consequently not be able to take advantage of certain trades discussed herein.

Be sure to read the OCCs Characteristics and Risks of Standardized Options to learn more about options trading.

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The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors. For more information please see our disclaimer.
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