Staring at an Option Quote

Taking a small punt on gold upside before the end of the year. You can follow the thread here.

Kris

@KrisAbdelmessih

If GLD bottomed this am and you think the bank hacking narrative has legs it’s an interesting time to look at metals upside. The vols screen cheap cross-sectionally and have low percentile call skew (x axis is our "buy vol" algo score), y axis is skew percentile

@KrisAbdelmessih · 2026-10-23 · View on X

Point of sale: GC Dec 4260/4270 call spread

Even though I mentioned GLD, I actually executed in GC, the Comex futures gold options. GLD references gold in London vaults, and Comex delivery is in NY. But that difference has nothing to do with it.

Trading futures options has 1/3 the all-in cost (IBKR and exchange fees) of the equivalent risk in equity options. 250 GLD spreads = 25 GC spreads. The cost difference was about $100 instead of $300.

For educational purposes, I thought I’d share some observations from the point of sale. I targeted the 4260/4270 call spread. It’s a tight spread, similar to if you just wanted a binary bet on the futures expiring above 4265 or ~7% higher by late November.

I bid 1.40 for 25 spreads and didn’t get any contracts until the futures drifted lower to about 4006.70. That’s the first candle in this pic showing GC futures chart until the end of the day. I also superimposed the market in the call spread on the chart.

The market was 1.40 / 1.50 with Bid size (15), ask size (771)

I had been staring at the quote for a while before I even got a fill. After getting hit on 10 lots, I turned on a screen recorder for the next 2.5 hours (until 4pm ET, though the futures continue to trade for another hour)

Keep in mind this is a $10-wide spread with a .01 delta. $10 in gold is about 25 bps.

What follows is what’s running through my mind when I stare at the quote while watching the futures tick. I stepped away for long stretches and the other thing to keep in mind, based on what the recording revealed:

The quote never changed. Not a single market “event”. HFT people refer to any modification in a quote as a market event.

1. The offer never budged.

2. The bid was not joined.

3. Nothing traded.

4. The offer size stayed constant. No additions or subtractions.

My thoughts:

• Taking a partial fill of only 10 out of 25 is bizarre. I’d think the only counterparty to this is a market-maker. Who wakes up looking to trade a 25 bps wide vertical naturally? So I expect when I get hit it’s a market-maker, but then they only sell 10 out of the 25? What is this, a market-maker for ants?! And then when a partial trades, how does the rest of the bid not get swept by the chipper algo which surely knows this is a resting non-market maker starting to get hit.

• The futures dipped a few dollars below where I was filled. If the first seller liked selling at the higher futures price, don’t they like selling the spread even more now? I know the spread is only .01 delta, but… actually, let’s get into that for a moment.

• In the recording window, the futures rallied to 4015, or about $9 higher than when I got a partial fill. At .01 delta, $10 is 10 cents, which is one full tick in this spread, the gap between 1.40 and 1.50. Paying 1.50 with futures at 4015 is the same price as paying 1.40 with futures at 4005. The market wouldn’t fill me at 1.40 at 4005, but offered an equivalent price at 4015. Furthermore, my bid wasn’t joined with more size and the offer didn’t pull.

Anyway, if you untangle the chain of reasoning here, it can help you think more about how options get quoted. When option deltas are low, there are minimum increment problems in edge capture. For example, if an option has .01 delta, you could sell it with the futures at any price over a $10 range and you’d be booking something between a penny and a tenth of a penny of edge but at the tenth-of-a-penny price it’s obviously worse (you’re 10x less profitable if you extrapolate across your business), but you also can’t turn the market over and be bid there for a negative a tenth a penny of edge.

If you flip this logic to the customer side, if you keep track of all the market “events” you can likely deduce when a market on a low delta option will tick to the next price level. If you can buy a call synchronously with the last tick in the future before the market turned, that would be the best possible fill.

If you are a beginner, just understanding that buying a call for X vs 4015 in the futures is a better buy than buying it for X against 4006 in the futures is a step toward understanding the concept of volatility (the second buy is a worse IV than the first by:

change in underlying * delta / vega