so i scalp SPY options for the very simple reason that they have the most volume, so the spreads are usually 1 to 2 cents tops and i can always get either a market fill or one extremely close because at any given time there are hundreds if not thousands of bids stacked up.

things get complicated tho because not all brokerages offer market close orders and the ones that do (looking at thinkorswim right now) want 65c per contract. which seems like a really innocuous amount but as we are about to see, its not..

here is a quick breakdown of the cost of an option at various strike prices, the cost in fees, and the impact on expected profit. its calculated assuming we buy 2 day contracts on SPY while its last close price is $414.95. these numbers will change slightly based on expiration dates, implied volatility, etc, but the overall scope of impact is fairly consistent.

here is the chart for anyone interested: http://opcalc.com/v0z

columns:
strike/cost: strike price of the option and its relative cost. options with strike prices closer to the current market value cost more because they are more likely to close in the money, so they pay out less.

#cons in a 10k lot: this is how many contracts we could afford if we are taking a net $10,000 position in our scalp

cost per 10k lot: each contract costs 65 cents, this is how much we are paying for the contracts required to fill a $10,000 order

profit on a 50c move / percent lost to fees: if spy goes to approximately $415.50, this is how much profit our position will generate, and this is what percent of that profit we lose to contract fees. note that because this is a scalp, we expect to close our position before time decay impacts the expected profit in any noteworthy way.



[strike/cost]................[#cons in a $10k lot]................ [ cost per 10k lot] ................[ profit on a 50c move / percent lost to fees ]

415c / $1.66............................60............... ................................... $39.00............................................ . $1620 / +16.3% / 2.4%

417c / .66.................................150........... ..................................... $97.5............................................. ... $2550 / +25.8% / 3.8%

419c / .20.................................500........... .................................... $325.............................................. ... $3500 / +35% / 9.2%


honestly losing 9.2% of my expected profit to fees is pretty intense and to my knowledge, that shit isnt tax deductible either.

now theres a bit of an x-factor here that im going to look into on monday; what happens if i try to close an options contract at a much lower price than market.

ill explain; a market order close simply fills your order at the highest bid price available when you become the next seller on the queue. now supposedly, and i havent tested this but supposedly, if you have a contract on robinhood worth say, $2.20... you cant place a market close because robinhood doesnt offer market closes, (and neither does the other no-fee brokerage: webull.. but again, allegedly... if you place an order to close at under market, you will get filled at the most advantageous price available.

so if i sell for $1.00 and market value is $2.20, i will end up actually getting filled at whatever the market is offering when im next up on queue. which will likely be in the $2.17 to $2.19 range, if not $2.20.

so its almost like a synthetic market close.

one must assume that citadel is front running my order but to what extent?

ill be testing this shit out on monday and report back with what i find.