Shopping for Condors

Fifty Ways to Trade an Option

Strike listings are a significant driver of liquidity and thus trading opportunities. But they can also be a headache.

Options strategies move from theory to practice with the specific strikes and expirations that are listed at any given time. For most of the commonly traded names, this is not a problem. I’ll complain about the $2.50 gaps we see in AAPL, but for the most part listings are very good.

Most traders don’t have (or need) a fine enough razor to parse the difference between a strategy that ends at 6055 or 6060 in SPX. A week out and the difference in delta between those is about 2.5. Overlays or butterflies, not only are there good choices, there’s likely to be a tight market.

The buy side typically wants to see more strikes. They have some strategy that needs to sell the 30 delta call and 32 is too far away. Spot pickers want to see $1 strikes so their broken wing franken-structures can get exactly the right payoffs.

Objections mostly come from the “infrastructural alpha” community, where players like exchanges and liquidity providers have to balance the potential for increased orderflow and customer interest, with the capital risks of streaming more quotes, and the infrastructure costs of processing all that throughput.

If you’re interested in digging more into this debate, check out “Strike Pickins” over at The Till:

Strike Pickins

There can be too much of a good thing. A surfeit of strike choices and the problem becomes the customer’s. When confronted with a strip of options like we see in MSTR, it gets confusing to parse which ones are useful and which aren’t.

With Bitcoin nudging $100k, and MSTR doing their best to leverage every ounce out of that, we have an asset whose stock price is matched only by its volatility. That likely means opportunity, but where?

Today in Fifty Ways to Trade an Option, we’ll look at how to think about the fine shades of difference that separate condor structures in strike rich listings.