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In a message dated 97-12-12 20:28:53 EST, marcelom@xxxxxxxxxxxxx writes:
<< How do you determine where the market is in a spread? If I ask my broker
he'll just quote the natural spread (ask on buy minus bid on sell) but I
know you can get a better price than this , but what price ?. I actually
do want to take advantage of the short "wiggles" of the market to get a
better price for the spread since it will increase profit potential and
will reduce my risk once you are in. >>
Hi Marcello,
One way to get your better price is to use a limit order to buy,
splitting the bid and ask. This works fairley well if you are simply buying
puts or calls since you will usually (but not always) get filled at your
price. However, if you are establishing a straddle or spread you are better
off opening the entire position at one time and not worring about small
savings in price.
The purpose of these stratagies is to reduce risk (in exchange for
limited profitability). By "legging" into them (taking one side first, then
the other later) you substantially increases your risk. In some situations,
if you buy one part and the market moves against you before establishing the
other part BOTH sides could be loosers!
Good luck and good trading,
Ray Raffurty
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