Finally, someone who explains bid/ask from both the market viewpoint and my viewpoint! I've been struggling to understand this bid/ask concept and you've really cleared it up for me. Thank You! You've earned a subscriber and a like.
THANK YOU!!! Just a tip for beginners like me to help understand when your buying/selling an option (do I click on bid or ask?). You can't buy an option for cheaper than what you could sell it for. You can't sell an option for more than what you could buy it for. This makes sense...otherwise we'd all be multi multi millionaires.
JESUS CHRIST!!!!! God forgive me but I've been searching the whole internet trying to find someone who could explain this bid and ask concept to me the right way. Most videos are telling me the bid is when you want to buy and the ask is when you want to sell and I'm like tf that doesn't sound right. 1:11 you explained the whole thing perfectly, thank you my G.
How can we benefit from an arbitrage with bid-ask using Put-Call parity? For example if we are looking for the correct ask price of a call implied by the parity, given that the Put price is correct, should we equalize C_ask = P_bid - S -PV(K) or C_bid = P_bid - S -PV(K) ? Thank you! Great video by the way!
Thanks! Going to be hard to execute arbitrage in today's markets - typically to create a "risk free" trade in today's markets we have to leg into it, which means we're taking risk at some point. (broken wing butterfly > free butterfly, etc)
Thanks for the video. I was watching to understand the bid and ask concepts. I watched other videos also. But in your video I could confirm that the terms should be considered from the market side. One question please. Is there a percentage of the did and ask spread which we can say fair from profit and loss point of view?
We like to trade bid/ask spreads that have less than 0.1% slippage - in other words, if I have a $100 stock, I want to see a $0.10 wide bid/ask spread or even more narrow than that. This has nothing to do with profit/loss of the trade, but more to do with slipppage and the worst case scenario of getting in and out on the natural prices - we don't want to lose much doing this. SPY is the best example of an extremely liquid marketplace.
So how do you calculate the IV change from activity. For every put bought/ sold the iv moves up or down and vice versa when calls are purchased, what's the best way to understand the volume activity and what it will do to the IV?
Question, If the bid or ask is 100, and i buy 20000 at the ask/bid or above the ask/bid, will it increase the chances of my order being filled? especially when the broker processes the order/lets it go through, or is buying more shares than the ask bid a waste of time, ?
So the numbers after the bid and ask are just how many people buying/selling? For example a Bid of .50 x 10 and Ask .75 x 20 would mean 10 people are offering $.50 cents while 20 people are trying to sell for $.75?
This means that the B/A spread is only relevant if you want to adjust the trade? I'm asking because in case of a CSP or a CC, you might be unwilling to adjust anyways and under those circumstances a high spread would not matter?
In most cases it will matter more when adjusting or closing, and matter less if you plan to let the option expire. The difference is that if the spread is really wide, you might not get filled at a fair price on the way in, because it's harder to determine what that fair price is.
I have noticed that in big stocks like amzn, gmc, goog the bid and ask spread is very wide compare to spy or appl. Now this have good volume and good open interest witch it leads me to believe the option is very liquid. Some of them have over a 1000 in volume and open interest why is this? For example the 10 jun 16 weeklys AMZN $730 call has a volume of 1,309 and open interest of 1,476. Now the bid and ask is very wide (.20 cents apart). The bid going for $5.10 and ask $5.30. If they are liquid why is the bid and ask so spread out?
Paulo, Higher priced underlyings inherently have wider spreads, even if they are still liquid. A good rule of thumb is to base it on percentages for that reason. If an underlying's bid/ask spread is less than 0.1% of the underlying's value, then it is considered liquid. For example a $500 underlying would be considered liquid if the bid/ask was 50 cents or less.
If a chart of a stock shows an opportunity for an entry signal (for example:) a long call, at the money, but I can't find an 80 delta and the open interest is high and the bid ask spreads are narrow to placed the trade. What are my options?
It's impossible to know, which is the problem. We typically start at the mid-price, and then walk that closer to the natural price, where we know we can get filled.
One thing that i don't understand, the options price is set by mathematical formulas (?) should not both the bid and the ask follow this mathematic formula and go up or down in the same way? And why can an option that has 0 volume have a tighter bid-ask spread than one that have more than 0 volume?
Volume is just one piece of the puzzle - open interest could be the contributing factor. Either way, there must be a market for each option, and people could be moving the prices if there is very little activity, which could lead to wider bid-ask spreads.
7:56 Wait if the spread is 30 you divide by 2, to get 15 and you say the mid-price is 65 that means you subtracted the 15 from the 0.80 on the ask side?
I made a mistake, what I meant was If a chart of a stock shows an opportunity for an entry signal (for example:) a long call, but I can't find an 80 delta to recover most of my money because of "Vega" and the bid and ask spreads are not narrow, in the options chain being 30 days,32 days out etc. What should I do in that situation?
A huge problem in my understanding of put options is the 'bid/sell' concept because it sounds exactly like a limit order to me. Why don't I just tap ask/buy and place a limit order? Same concept as a bid/sell put option. Can anyone explains this? Once I solve this logic I will be good to go.
If you are choosing a price to enter a trade at and refuse to get in at a worse price, then that is a limit order. Market orders are triggered to fill you at the first price available, which could be very different than your target. Normally, people use limit orders to get in and out of trades unless they need to get in or out immediately, in which case a market order may be used. If you're selling an option, you're probably not going to get filled at the ask price, as that is not the natural price for selling. That is the natural price for buying. If you sell an option on the bid price, that is the natural price and should fill you immediately. We shoot for the mid-price between the bid-ask, and adjust as we need to. The closer you get to natural price, the higher the chance you have at getting filled!
Thank you. This video really helped me understand why some of my trades looked good but ended up sucking. Thank You!
Finally, someone who explains bid/ask from both the market viewpoint and my viewpoint! I've been struggling to understand this bid/ask concept and you've really cleared it up for me. Thank You! You've earned a subscriber and a like.
Thanks Mark! We appreciate it!
THANK YOU!!! Just a tip for beginners like me to help understand when your buying/selling an option (do I click on bid or ask?). You can't buy an option for cheaper than what you could sell it for. You can't sell an option for more than what you could buy it for. This makes sense...otherwise we'd all be multi multi millionaires.
You explain these very well. Thank you my man. One of my nee favorite channels.
JESUS CHRIST!!!!! God forgive me but I've been searching the whole internet trying to find someone who could explain this bid and ask concept to me the right way. Most videos are telling me the bid is when you want to buy and the ask is when you want to sell and I'm like tf that doesn't sound right. 1:11 you explained the whole thing perfectly, thank you my G.
Mike, very good video very well explained. I learned so much watching your presentation.
Thank you
That's one Big / Ass Spread!
Thank you! Sir.......well explained for I guy like me who is new to options and I subscribed.
Im so glad I found these videos
Thank you! This helped tremendously!!
How can we benefit from an arbitrage with bid-ask using Put-Call parity?
For example if we are looking for the correct ask price of a call implied by the parity, given that the Put price is correct, should we equalize C_ask = P_bid - S -PV(K) or C_bid = P_bid - S -PV(K) ?
Thank you! Great video by the way!
Thanks!
Going to be hard to execute arbitrage in today's markets - typically to create a "risk free" trade in today's markets we have to leg into it, which means we're taking risk at some point. (broken wing butterfly > free butterfly, etc)
Awesome video! Very informative and straight to the point! Keep up the great work!
Really brilliant tutorial!!!
Thank you. Great video!
Thanks for the video. I was watching to understand the bid and ask concepts. I watched other videos also. But in your video I could confirm that the terms should be considered from the market side. One question please. Is there a percentage of the did and ask spread which we can say fair from profit and loss point of view?
We like to trade bid/ask spreads that have less than 0.1% slippage - in other words, if I have a $100 stock, I want to see a $0.10 wide bid/ask spread or even more narrow than that. This has nothing to do with profit/loss of the trade, but more to do with slipppage and the worst case scenario of getting in and out on the natural prices - we don't want to lose much doing this. SPY is the best example of an extremely liquid marketplace.
Does the spread correlate with IV? A high spread is always high iv or low iv? Or is it strictly based off volume metrics?
In a market meltdown spreads can get pretty wide. but bid-ask width is typically based on activity levels.
So how do you calculate the IV change from activity. For every put bought/ sold the iv moves up or down and vice versa when calls are purchased, what's the best way to understand the volume activity and what it will do to the IV?
We look at IV Rank - this puts context around implied volatility levels and whether they're high or low relatively speaking.
Question, If the bid or ask is 100, and i buy 20000 at the ask/bid or above the ask/bid, will it increase the chances of my order being filled? especially when the broker processes the order/lets it go through, or is buying more shares than the ask bid a waste of time, ?
Can you rephrase? Not understanding the question.
So the numbers after the bid and ask are just how many people buying/selling? For example a Bid of .50 x 10 and Ask .75 x 20 would mean 10 people are offering $.50 cents while 20 people are trying to sell for $.75?
It depends on the brokerage - some list different data - I would reach out to the brokerage in question directly to confirm.
This means that the B/A spread is only relevant if you want to adjust the trade? I'm asking because in case of a CSP or a CC, you might be unwilling to adjust anyways and under those circumstances a high spread would not matter?
In most cases it will matter more when adjusting or closing, and matter less if you plan to let the option expire. The difference is that if the spread is really wide, you might not get filled at a fair price on the way in, because it's harder to determine what that fair price is.
I have noticed that in big stocks like amzn, gmc, goog the bid and ask spread is very wide compare to spy or appl. Now this have good volume and good open interest witch it leads me to believe the option is very liquid. Some of them have over a 1000 in volume and open interest why is this? For example the 10 jun 16 weeklys AMZN $730 call has a volume of 1,309 and open interest of 1,476. Now the bid and ask is very wide (.20 cents apart). The bid going for $5.10 and ask $5.30. If they are liquid why is the bid and ask so spread out?
Paulo,
Higher priced underlyings inherently have wider spreads, even if they are still liquid. A good rule of thumb is to base it on percentages for that reason.
If an underlying's bid/ask spread is less than 0.1% of the underlying's value, then it is considered liquid.
For example a $500 underlying would be considered liquid if the bid/ask was 50 cents or less.
Tight bid /ask also indicates big player in stock?
Thank you bro
Are you able to explain the direction of the relationship between bid-ask spread and market capitalisation?
Thank you
Great video thanks.
In a direct quote, the forward bid/ask points are added to the bid/ask spot exchange rate whenever the bid points exceed the ask points. True/False
So i need to learn both oi/ volume and bid/ask?
OI / Volume will explain why a bid-ask may be narrow or wide, but bid-ask is the most important.
If a chart of a stock shows an opportunity for an entry signal (for example:) a long call, at the money, but I can't find an 80 delta and the open interest is high and the bid ask spreads are narrow to placed the trade. What are my options?
Can you elaborate further on this question?
So with that 0.50/0.80 Bid/Ask spread, if you wanted to buy it with a limit order, what price would give you a reasonable chance of getting filled?
It's impossible to know, which is the problem. We typically start at the mid-price, and then walk that closer to the natural price, where we know we can get filled.
@@tastyliveshow ahhh, it burns buying too high doesn't it? bought at 0.35 when today I could be buying at 0.30! such is life i suppose ;)
One thing that i don't understand, the options price is set by mathematical formulas
(?) should not both the bid and the ask follow this mathematic formula and go up or down in the same way?
And why can an option that has 0 volume have a tighter bid-ask spread than one that have more than 0 volume?
Volume is just one piece of the puzzle - open interest could be the contributing factor. Either way, there must be a market for each option, and people could be moving the prices if there is very little activity, which could lead to wider bid-ask spreads.
7:56 Wait if the spread is 30 you divide by 2, to get 15 and you say the mid-price is 65 that means you subtracted the 15 from the 0.80 on the ask side?
He keeps saying difference but he means "average"
I made a mistake, what I meant was If a chart of a stock shows an opportunity for an entry signal (for example:) a long call, but I can't find an 80 delta to recover most of my money because of "Vega" and the bid and ask spreads are not narrow, in the options chain being 30 days,32 days out etc. What should I do in that situation?
You can always find an 80 delta option, you might just have restrictions on the amount of strikes you see on the platform.
Thanks, that's helpful!
A huge problem in my understanding of put options is the 'bid/sell' concept because it sounds exactly like a limit order to me. Why don't I just tap ask/buy and place a limit order? Same concept as a bid/sell put option. Can anyone explains this? Once I solve this logic I will be good to go.
If you are choosing a price to enter a trade at and refuse to get in at a worse price, then that is a limit order. Market orders are triggered to fill you at the first price available, which could be very different than your target.
Normally, people use limit orders to get in and out of trades unless they need to get in or out immediately, in which case a market order may be used.
If you're selling an option, you're probably not going to get filled at the ask price, as that is not the natural price for selling. That is the natural price for buying.
If you sell an option on the bid price, that is the natural price and should fill you immediately.
We shoot for the mid-price between the bid-ask, and adjust as we need to. The closer you get to natural price, the higher the chance you have at getting filled!
thank you!
how do i plot a graph for bid/call-ask/put option graph?
I'm sorry I don't follow - what do you mean by this?
I had an assignment from school to plot the above graph using R
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Nice..Thanks?
Bid/ask = sell/buy ?
Correct!
I just want to know how you guys are liquid enough to buy the rights to use Led Zeppelin.