May 5, 2009
As an independent retail investor and trader, I approve of the temporary extension of the options penny pilot program.
The reduction in bid/ask spreads often makes the difference between a profitable and unprofitable trade.
I would like to see the penny pilot program extended indefinitely, and expanded to include all options below 3.00 premium that belong to series that trade at least 10,000 contracts per month (summed across all exchanges) on a six month rolling average basis, with a minimum volume of 5000 contracts per month. (i.e. to be included, the six month average volume would have to be at least 10,000 contracts AND the volume in each individual month must be at least 5000 contracts). This would avoid the problem of permanently designating option series as penny priced when the exchange volume is not there to justify the reduced bid/ask spread. (e.g. Agilent and Flextronics)
Based on current CBOE volumes this would include 38 equities. There would be slow rotation of the equities into and out of the program as long-term volumes fluctuate, and companies cease trading or merge (e.g. BSC, CFC, etc.) Obviously, this involves some work, but it would keep the penny pricing relevant to what is happening in the market over the long term.
On a different topic - it would be a brilliant idea to standardize strike price intervals across all options to no more than 10% of the price above $10. For example, $1 strikes from $1 to $25, $2.50 strikes from $25 to $50, $5 strike from $50 to $100, and $10 strike intervals from $100 and up for all stock equities. This would vastly simplify option nomenclature and provide traders with consistent strikes to trade against from month to month. I would keep universal $1 strike intervals on heavily traded ETFs such at QQQQ, SPY, etc.