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Oh yeah, a perfect example of one those real nice stock option screw jobs
is Texas Insturments on the CBOE. For a moderately priced option in the
$6-7 range, the bid-ask regulary has a 1/2 - 3/4 spread. Unbelievable!
You'd be hard pressed to even trade that on a positioned short term basis!
One way to get around this problem is by placing a limit order between the
spread. So for instance if the market was 6 1/4-7, I'd place my order to
buy at 6 3/8-1/2 or so. If there are several orders between the spread,
market makers will fill you to clean out the range. But I've found the
success of this strategy can vary with brokers. Some will get the
execution others will not. Any ideas as to why?
This also works well for NASDAQ stocks.
Brian.
PS. Where do you get direct line access to the pit for < $15 RT?
-----Original Message-----
From: Tom Cathey [SMTP:K1JJ@xxxxxxx]
Sent: Saturday, March 21, 1998 7:37 PM
To: omega-list@xxxxxxxxxx
Subject: Stocks - the shame of it
Most stock traders would agree that a spread of 15 bid - 15 1/8 ask is
fair and not bad for an average stock.
Imagine that this equates to the S&P 500 future having an 1100 bid and
1108.80 ask ????
(It's normally 1100 bid 1100.10 ask)
To equate to this S&P spread, the $15 stock would now be 15 bid - 15
1/11000 ask ....a little better , huh?
I just don't know how stock traders put up with that crap, or make money
day trading with this kind of "market maker" vulture activity. I do
realize it's just a reflection of liquidity since there's only 25-30 liquid
commodities and thousands of stocks.
BTW, I've seen stocks at 30 bid - 31 ask many times.
This equates to S&P 500: 1100 bid - 1135.20 ask --- gag me !
OR.....common option screw jobs are say, 2 bid - 2 1/2 ask
S&P 500 eqivalent: 1100 bid - 1375 ask <g>!
With no margin interest, commissions under $15 round turn, a fair spread,
(on most commodities) no uptick rule, on-line web direct to the pit
access, etc..... futures are quite a respectable vehicle compared to
stocks. I think when all expenses are added up, day trading stocks puts
traders at a great disadvantage with a false sense of security. Yes, I've
seen stocks go "limit down" too - opening down 15 points, etc....surprise,
surprise, surprise!
Tom Cathey
> This is a decided disadvantage if you need quick and relatively sure
> executions (i.e. this works against the daytrader of stocks). If the
> 1/8 or 3/16 "slippage" doesn't matter to you, that's great. If your
> position trading, it may be fine. But daytrading, every tick counts
> and you must have as much control over your order as you can get.
>
> There's also the issue of how well disclosed this practice is...
>
> fwiw
>
> cw
>
>
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