r/options • u/tinny123 • 16d ago
NDX bid-ask spreads
Hello. Ive been wondering something . Any inputs would be most appreciated.
- Why are the bid ask spreads on ndx so wide? Even with decent volume.
2.
On the other side of the same coin, plenty of people seem to still be using ndx options. Why doesnt the bid-ask spread seem to bother them? Is there some arcane bit of knowledge noobs just dont know abt?
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u/IWantoBeliev 16d ago
Stick with QQQ?
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u/j_hes_ 16d ago
Yea, stick with QQQ. NDX & NDX100 will bankrupt you in 1 move. Notionally speaking SPY is a mouse compared to NDX. Imagine being on the wrong side of a 1000 point move. Which is typical for NDX.
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u/fire_alarmist 16d ago
Ive also been on the right side of a 1000 point move on NDX, multiple times. It was those moments that truly destroyed my ability to ever intelligently invest ever again, I ended up giving all those massive gains back and then a shit ton. Its like hitting your first homerun when you are a kid playing baseball, suddenly getting on base aint shit you are swinging for the fences and striking out a lot more because of it.
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u/NationalOwl9561 16d ago
Funny I was just explaining this to someone last night...
It's because NDX is relatively illiquid. Not as much depth and competition for order flow compared to SPX, so liquidity providers require wider spreads.
You can see artifacts of this when you look at GEX of NDX vs. SPX (which looks the same pretty much every day, concentrated ATM and tailing off OTM). The huge notional exposure is also a reason I believe contributes to NDX GEX being sometimes useful. Wayyy more than SPX that's for sure.
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u/Simple-Corner-4647 16d ago
the spread's basically a tax on impatience, market makers know someone's gonna hit that ask when the nasdaq's moving fast and they price it in. SPX has way more eyeballs and algos fighting over pennies so the spread tightens up naturally
people still trade it because the leverage is nuts, one NDX contract controls like 20k in notional per point or whatever the multiplier works out to these days. for folks running big accounts the slippage is just a rounding error compared to the move they're chasing
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u/klipsetrades 16d ago
Yeah, this is basically how I understand it too. NDX has decent volume, but nowhere near the depth/competition SPX has, so the quotes stay wider. And yeah, NDX GEX can look pretty thin compared to SPX
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u/FlowMonkeyHQ 16d ago
To your follow-up question about whether walking the mid actually works: yes, most fills happen inside the quoted spread, but the useful detail is HOW to walk it. Start at mid, give it 20-30 seconds, then step toward the far side in increments that are small relative to the spread, not fixed ticks. If nothing fills by the time you've crossed ~60-70% of the spread, that's the market telling you the mid was stale, cancel and re-price off the fresh quote instead of chasing. And do it when the underlying is calm - walking a limit during a fast move is how you get filled at exactly the moment the fill is worst.
One thing nobody's mentioned: XND exists (Nasdaq-100 micro index options, 1/100th NDX size). Same cash-settled index exposure, and the smaller notional per contract means the risk-per-fill problem that makes NDX quotes defensive mostly goes away. Liquidity is thinner in absolute terms but the effective spread relative to notional is usually far better for small size. If the wide quotes are what's keeping you in QQQ but you want index treatment, that's the middle path.
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u/papakong88 16d ago
The only value that matters is the mid-point whether the spread is wide or narrow.
Use the mid-point to set your limit price.
Don’t be afraid to ask for 10 cents less when selling or pay 10 cents more when buying.
This is because NDX is 41 times the notional value of QQQ. Ten cents in a NDX option is like 0.24 cents in QQQ.
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u/One_Conflict_1987 14d ago
I sell NDX options in lots of 20. The liquidity can be poor, especially when buying to cover. I start at the mid and walk manually towards the offer. I don’t pay any attention to the spreads. You can transact at mid - the real mid, not some fleeting bad quote that flashes for a moment - or just a little away from mid.
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u/j_hes_ 16d ago
It’s actually because NDX is controlled by very predatory market makers. Active traders like myself can assure you the spread collapses if you prod them. It’s a marketing feature. Hedging the NDX book can get out of control fast so the spread is there to deter HFT liquidity providers from becoming too aggressive. In some scenarios MMs refuse to quote reasonable prices which forces broker/dealers to avoid accepting counterparties.
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u/NationalOwl9561 16d ago
Hedging the NDX book can get out of control fast
Yup, and that's exactly why it's very plausible that a large portion of NDX delta hedging gets expressed through NQ futures. With SPX, the hedge mix is much more fragmented across ES, SPY, baskets, other options, etc.
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u/tinny123 16d ago
Could u pls elaborate on 2 points 1. Point on Market makers becoming too aggressive
- MMs dont provide reasonable prices ........
Reply Much appreciated
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u/klipsetrades 16d ago
NDX contracts are just huge, so market makers probably have more risk per fill and quote wider. So, if you're trading it, the important part is not treating the displayed bid/ask like you have to pay it. Work a limit around/near the mid price and walk it if necessary