Spread Scalping

Most traders would rather go home with a flat position. Day traders, scalpers, position traders, options speculators, and market makers would all be delighted if the market were to do what they expected before the closing bell, so that they could get flat. They would rather not have to worry about it overnight and enjoy the fact that they had had a good day. The next section is devoted to the concept of getting "in" and "out" of spreads which do not have a transparent price level.

A transparent price is one that is displayed on the boards of the exchanges or on computer screens via price feeds. When something is nontransparent, an additional amount has to be factored in to derive its true value. The biggest non-transparencies in the markets today have to do with embedded qualities, such as dividends, cost of carry, and features of delivery. Those who can calculate non-transparent spread values faster than the competition make profits.

Prices are certainly not displayed if the spread is some sort of ratio of different contracts. Any relationship can be made transparent today with the sophisticated software or market-linked spreadsheets that are available. The user can define relationships that update dynamically as individual contract prices change.

To be able to maintain a reference to cost levels while trading spreads, with or without these tools, one must have a system to monitor and evaluate price relationships between the instruments that are being traded.

The next few examples have little to do with options. They are provided to help promote certain conceptual ideas for spread tracking. It is useful to comprehend this because similar techniques can be used to scalp in and out of relatively liquid options that are traded against the underlying on a delta-neutral basis.

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