Comments: Filled this bearish assumption back ratio on TLT strength for 23.99 (See Post Below). Manually closed it today for a 26.21 credit; 2.22 ($222) profit; 9.3% ROC.
Do wide spreads ever become a challenge when trading such strategies with deep ITM strikes? Being a bearish directional trade you're also hoping the deep ITM long puts to go even deeper ITM.
I checked the TLT option chain just now and was quite surprised how tight the spreads are - even 20 strikes ITM - for a product that doesn't see all that much volume. I had to defend a deep ITM put on AMZN once by rolling and the spread just kept widening more and more as it went deeper ITM - a double whammy on an already losing trade.
NaughtyPines
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@EqEx, On the fill side, sometimes you have to "shop around" for an expiry in which the delta'd strike you want to use is relatively liquid. Even high delta SPY options far out in time tend to be really crappy from a liquidity standpoint. On the closing or rolling side, this can really be a pain in the ass if either the strike you're rolling from is illiquid or the strike you're rolling to is illiquid or both. This is kind of why I get in there and defend almost immediately on short put test either by selling a call against or rolling out the short put before it gets shitty deep ITM and then selling call against to flatten net delta in the position and improve my down side break even.
EqEx
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@NaughtyPines, What about the long contracts when closing the trade? In this example, the 2x 163 puts. How do you deal with a crappy fill on those? They're even deeper ITM than the short strike and more likely even less liquid. Is it a matter of just accepting it as cost of doing business?
NaughtyPines
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@EqEx, I think I had to nickel down a couple of times to get a fill. The 163's are currently .96/ask 1.16, so that's .20 wide, so I guess some dick made money off of me because I was willing to settle for a price off the mid.
I checked the TLT option chain just now and was quite surprised how tight the spreads are - even 20 strikes ITM - for a product that doesn't see all that much volume. I had to defend a deep ITM put on AMZN once by rolling and the spread just kept widening more and more as it went deeper ITM - a double whammy on an already losing trade.