An options trade is imminent. The High-Probability, Mean-Reversion strategy is showing short-term extremes in all of the major benchmarks and the RSI (2) is confirming my proprietary indicators. With that being said, I would expect to see a trade in one or more of the major market ETFs tomorrow.
I have been getting a lot of requests to follow other ETFs in the strategy. While I would absolutely love to increase the number of ETFs on the list, the liquidity in the ETFs requested do not meet my requirements. If the options liquidity is too low, the bid/ask spread in the underlying ETF is too wide.
For example, if we have an option that displays a bid/ask spread of $2.00-2.50, then the market maker is essentially buying an option at the ask for $2.00 and selling at the bid for $2.50 for a nice $0.50 gain per contract. That equates to $50 a contract. I prefer a bid/ask spread no less than $0.10 wide, and even that is almost too big for me to take a trade. I want to trade in the most efficient market possible and taking a potential 25 percent hit right off the bat seems ludicrous. Would you do that with a stock? Of course not. Then why would you do this with an option? I will discuss this topic futher tomorrow.
For now, I want to concentrate on my trade set-ups for tomorrow.
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