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Wouldn't a more reasonable comparison be spread versus potential for price
change?
If the spread is the "cost of doing business" then the comparison shoud be
the potential average price movement, not in absolute dollars, but rather in
percentage return on the investment. A modest change in the value of the
underlying will result in a much larger relatie price change in the option
-- and that value can be even more pronounced with changes in the volatility
factor.
Just another viewpoint.
Richard Funkhouser
Gary Fritz wrote:
> > With QQQ at 42, the July 46 call (4 strikes out-of-the-money) has
> > a B/A spread (slippage) of 1 tick,
>
> But that 1 tick is the difference between $0.25 and $0.30 --
> percentage-wise that's an ENORMOUS spread. If I scale that up to NQ-
> equivalent prices, that's like having a b/a of 1545 / 1854 in the NQ!
>
> Unless I've grossly misunderstood something, you're never going to
> replace futures trading with a spread like that. If you're only
> buying the call as insurance with no intentions of trying to make a
> profit on it, that might be a lesser concern, but...
>
> > The 38 calls (4 strikes deep in-the-money) show a market depth of
> > more than 5000 on each side, with a B/A spread of only two ticks...
> > Though the B/A spread [ on the July 32 call] has widened to 4 ticks...
>
> Those spreads are much more reasonable -- 2.2% and 1.9% respectively.
> But it's still almost 100x bigger than the typical 1-tick (0.5-
> handle) spread in the NQ.
>
> So even with the smaller 2% spreads, that's still the equivalent of a
> 35-handle cost in the NQ. I don't think you'd want to try to trade
> the QQQ options in place of the futures, with costs like that. But
> you said in a previous note that you COULD use the QQQ and OEX for
> day trading of options. If you can make money with a 35-handle (or
> worse) penalty, you're a better trader than I am.
>
> What am I misunderstanding here?
>
> Gary
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