C2180-273 1Z0-522 HP2-K34 C2180-376 E20-597 HP0-M52 M2050-238 98-366 VCAC510 70-341 C2020-703 C2070-581 070-671 117-201 070-461 HP0-J73 350-029 70-687

March 8, 2012

A Penny Here, A Penny There on AAPL

Filed under: Options Education — Tags: , , — Dan Passarelli @ 10:52 am

One of the more difficult problems with which to deal for an options trader has historically been the broad bid-ask spreads quoted for options. Experienced traders have routinely negotiated the bid-ask spreads downward with varying success when trading individual positions, but the non-economic price has been the significant effort and time required to achieve these negotiated results.

Beginning in January2007, CBOE initiated a Pilot Program to reduce bid-ask spreads to as low as 1¢. As of February 28th of this year, there are currently 360 in the series (including such big names as Apple (AAPL), Microsoft (MSFT) and more) quoted in these penny increments. CBOE maintains an Excel file of option series currently included within this “Penny Pilot” program at: http://www.cboe.org/hybrid/pennypilot.aspx

Because option positions are frequently constructed with several individual legs, the impact of the ability to trade with tighter bid-ask spreads can have significant impact on the aggregate slippage of positions. Combined with the falling commission rates resulting from the increasingly intense completion amongst brokers specializing in options, significant trading efficiencies have resulted.

Edited by John Kmiecik

Senior Options Instructor

Market Taker Mentoring