Most people like to sell premium and collect money. Me, I like to buy premium in anticipation of a melt-up.
Today I placed an order to buy TQQQ 76.67C, Jan 2019, and another order to sell the same call option. I did this to see what the true market bid/ask spreads are.
In the morning, Schwab was publishing firstname.lastname@example.org, email@example.com and ask at 3.80. There had been no volume on this contract for several days, and the market has been up over the last few days/weeks.
I started placing orders to buy at $1.40, going up in 20c increments until the bid dropped again when I removed my order. The marketmaker bids rose and stayed elevated to $2.50, at which point my bid became best when my order was in, and the bid dropped to $2.50 when I removed my order. I got filled at $3.50. I bought 10 contracts.
Then I sold 1 contract. Started at $3.50, got filled at $3.30.
So the real spread was $3.30-$3.50 (about 6%), and not the $1.40-$3.80 (46%) that the platform said at the beginning of the day.
Compare to QQQ options for the same date (Jan 2019) — the same % out of the money (7% for QQQ, 21% for TQQQ) is 190 strike. Before starting, bid is $3.28 to ask of $3.35 (2%) . Using the same methodology buying 32 contracts and selling 2 I got filled buying at $3.29 and selling at $3.28 (0.3%).
Above is the view before starting QQQ trade
Above is the view after completing both QQQ trades (buying and selling). Notice I am all of the volume. Started at 405, I bought 32 and sold 2, ending volume is 439.
So, the final analysis is as following: