I always remember the spread of the US 500 being around 4 right around the strike price until recently. It looks as if the market makers have distanced the spread to a ridiculous 8 points. Im not very happy about this. It also looks as if they increased the price of out of the $ contracts. Has anyone else noticed this? I guess there not making enough money.
What contracts are you looking at? Assuming spreads? Intraday, daily? What time… night time or during the day?
The reason I ask is nightime is a less liquid time so bid ask may be wider.
Also note an out of the money spread may have a wider bid ask spread.
Intraday are also less liquid during the day than dailies.
Another factor in bid ask spread is when your trading. Ie holiday week like this week it was much less trading so that will increase bid ask spread. Also increased.implied implied volatility in the options markets will increase bid ask spread and it has been higher lately as well.
These are factors that affect all options nadex or otherwise.
Regarding proximity to underlying premium in a spread. There will be more the longer to expiration amd the higher the implied volatility which has been higher lately. This increases premium on all options. It is imply using a black scholes model. If they make the premium to high there would be arbitrage ie on Fridays between us 500 spreads and es options so they keep it in line with standard in pricing.
yes I mainly look at intraday about half an hour before expirationI focusing on the 10 a.m. And the 4 p.m.
Will have to check them tomorrow. But as stated lower liquidity and higher volatility during holidays etc does increase bid ask spread. Also often than can widen closer to.expiration.
However for perspective es options on cme have about .75 to 1.00 bid ask spread. It would take five nadex spreads to equal one es option. So one 1/5 an es option contract equals one nadex spread. 1 es contract= 50 options) So .75 x 50 / 5 to 1.00 x 50 / 5 or $7.50 to $10.00 if equalized so if your seeing 8 tick wide $8.00 wide bid ask) that is in line with other s & p 500 future option markets. I hate bid ask spread as much as the next guy. However understanding what impacts bid ask spread widening or narrowing (and why…ie lower liquidity during holidays allows for more random sporadic volatility therefor increasing risk on a market makers ability to unload the contract do to lower liquidity combined with faster movement…Their goal is to be delta neutral making some bid ask spread…During certain conditions as these they must increase the bid ask spread to help hedge the additional Rusk they take on do to lower liquidity and faster moves -if they are not able to be profitable on bid ask spread with all risk involved they then can no longer make a market which is not good for anyone) plus being able to compare it against other exchange based markets allows one to understand that it is not simply the greedy market maker jacking up spreads simply to hose people. They are hedging additional risk do to market conditions so they can continue to make markets. As liquidity returns and iv drops so does bid ask spread. As stated this is not just a nadex market maker thing it’s how all option markets work and reflects pricing as seen on the cme es options as well.
Checking this morning. I see that most of the bid/ask spreads are between 3-6.
Thanks for looking into the spread and explaining it, that makes sense.
