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Strategies & Market Trends : Options
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To: Poet who wrote (244)12/28/1999 11:44:00 AM
From: buffalogrif  Read Replies (1) of 8096
 
On short term or day trading
When you swing trade an option, you're fighting not one, but two bid/offer spreads - the spread on the option and the spread on the underlying stock.
For ex when you buy a call, the market marker can (and might) hedge its risk by buying a delta equivalent of the underlying stock. So they'll price the offer side of the call using the offer side of the stock which they need to buy. When you go to sell the process is reversed.
For active liquid options on Silverback Gorillas like CSCO an MSFT, this is hardly noticeable. But it can be a big issue for smaller companies or ones with big intra-day swings. TheStreet.com has an article today on exactly this for QCOM.
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