Question about available Liquidity on Russell 2000 and S&P 500 index credit spread options

Question:    Have there ever been any issues with not having enough buyers and sellers to fill our index credit spread positions?  I would assume at some point with enough people trading your ideas there would not be enough volume to fill suggested positions…am I wrong in thinking this? 

Response:   Regarding liquidity.…yes, if too many folks start trading index credit spreads, for example on the S&P 500 and Russell 2000 indexes and ETFs, the risk/reward characteristics of our credit spreads will become less attractive.  So far, however,  there seems to be plenty of  liquidity and the placement of the strike prices are still good.   Luckily, credit spreads are a lot harder than they look, so a certain % of participants get hit every month, scaring them and washing them out..…so it’s my guess that there will be plenty of liquidity for a long time to come.

Leave a comment

Your comment