Do Spreads Matter?

Heather Cullen

Heather Cullen

In The Money

Heather Cullen Blog IN The Money Do Spreads Matter

Alternatives to SPY

Mailerlite sorry

I have had quite a few emails suggesting that there are alternatives to SPY, other ETFs that also mirror the S&P 500, and why don’t we use them? A good question. So what is the answer?

Weighted by market capitalization

I selected the 5 top ETFs (by volume) that follow the S&P 500 and are based on market capitalization. This means that they follow the S&P 500 more closely, rather than equal weighted ETFs which hold all the stocks in the S&P but each has the same weight (e.g. RSP). The list is:

SPY – SPDR S&P 500 ETF Trust ($527.37)

IVV – iShares Core S&P 500 ETF ($529.96)

VOO – Vanguard S&P 500 ETF ($484.62)

SPLG – SPDR Portfolio S&P 500 ETF ($62.02)

SCHX – Schwab U.S. Large-Cap ETF ($62.30)

The advantages of having a cheaper priced option are obvious: if the share price is cheaper then the options will be proportionally cheaper. With a 50% SPY option now around $268 then it seems attractive to buy options at around $30. So what is the problem?

Volume & Market Makers

SPY has an enormous daily turnover of options, around 91 million. The others have much smaller volumes (see table below). Why should this bother us? There are market makers, aren’t there?

Well, yes. But the spreads are mandated, and the higher the volume the tighter the spread.

Why do we want a tight spread?

Because when we buy we want to buy at the lowest price, and when we sell we want to get the highest price we possibly can. If we are relying on market makers (as there are not many buyers or sellers, hence low volume) then we will have to accept the prices they give us, which as we will see is not to our advantage.

ETF Options Spreads

In the table below you can see the actual figures on a dec 2024 expiry option. Actually, SCHX doesn’t have a December expiry option, so I have used the November figures instead.

The percentage spreads range from 0.3% on SPY, to 6.5% on SPLG. If you bought at the ask price and then immediately sold it at the bid price you would lose 6.5% of your capital. That’s quite a loss to overcome before you start to make a profit.

Heather Cullen Blog IN The Money Do Spreads Matter

Spreads DO matter

That’s why we use SPY, not any of the other ETFs. If you are simply buying the shares the spread doesn’t affect you, but once you move into options it is a very big consideration.

Chat GPT

I started researching this on chat GPT and got the most nonsensical figures. I tried Copilot, and it was a little better, but not great. 

I queried the Chat GPT figures, but it assured me they were the most up to date (it was quoting SPY at $428!) I thought I had better go back to the actual option chains and do it myself.

This has severely dented my faith in Chat GPT, so feel it is only fitting that I got it to make this image!

To the markets . .

Despite being a disappointing week, in May the S%P 500 rose 4.8% and the Nasdaq 6.9%. Nice.

SPY Charts

Friday was a bit of a rollercoaster ride; everything happened in the last hour. Here’s the 1-minute chart:

I was watching the market for the first few hours, and it was down. I finally decided to accept it was going to stay down and turned it off. Imagine my surprise the next day to find out that it had actually risen. I’m not complaining!

You can see in the daily chart that it has a long downward shadow, and things were looking quite grim for a while. Now it is just over support, so fingers crossed it stays up there.

The weekly chart shows it continuing the upward trend:

Heather Cullen Blog IN The Money Do Spreads Matter

SPYG Charts

SPYG was very dramatic – look at the Friday candle. Sometimes called a ‘spring’ or a ‘dragonfly doji’ it is a candlestick with a very long downward shadow and a very small body. What is fascinating is that the tip of the shadow is exactly on the support / resistance line, showing that the market rejected that level and bounced up again.

Heather Cullen Blog IN The Money Do Spreads Matter

It is incredible how accurate this can be sometimes. And in the weekly chart we see a blip but the uptrend is still intact.

Heather Cullen Blog IN The Money Do Spreads Matter

QQQ Charts

Like SPY and SPYG, on Friday QQQ was well down for most of the day, before making a dramatic comeback in the last hour. Here’s the one-minute chart:

All the action – the price movement and the volume – was in the last half hour or so. FOMO, anyone? On the daily chart we see the same candle as SPYG, but not quite so accurate in its bounce off resistance.

Heather Cullen Blog IN The Money Do Spreads Matter

On the weekly chart we can see that the up trend is still intact:

Heather Cullen Blog IN The Money Do Spreads Matter

VIX Chart

The VIX chart barely moved, and is still very low.

Heather Cullen Blog IN The Money Do Spreads Matter

Where do the charts come from?

The one minute charts are new, and come from this website. They are free, and everyone has access. Here’s the link:


Heather Cullen Blog ITMeter

The week ahead . .

On Friday we have the non-farm payroll numbers, and it is expected to show that the labour economy is continuing strong. The ECB (European Central Bank) is expected to cut rates on Friday, the first central bank to do so. Other than that, these should be nothing major to cause volatility. Famous last words! I really shouldn’t say things like that.


It’s 24 hours until market open, so the futures are not open yet, but here is where they closed:

Summertime . .

This blog is going up early as tomorrow I will be on a boat, in the sun, sailing round Folegandros in the Greek islands. The weather is gorgeous, sunny, clear, high twenties, very little breeze, the water is warm enough for swimming. Lovely. What’s not to like?

Heather Cullen Blog IN The Money Do Spreads Matter

Fingers crossed for a good week on the markets.


Questions & Answers

22 thoughts on “Do Spreads Matter?”

  1. Hi Heather, Your books are good. I just want to report some typos in your book ITMB. I suppose you can do full text search: 1. please search for “$448”, it’s in chapter 6. I believe it should be “$398”, because 450 – 52 = 398 2. please search for “$2.542”, it’s in chapter 6, I believe it should be “$2.52”. No way you get 3 digits as decimals 3. please search for “$461.90”, it’s in chapter 6. I believe it should be “$514.81”. Otherwise the math work is simply wrong. 4. please search for “$521.50”, it’s in chapter 6. I believe it should be “$510.50”, because 550 – 39.50 = 510.50

    1. OOOPS – you are probalby right, and I will check when I get baack to Australia. I am having enormous trouble just trying to keep trading and update the blog using the int4ernet on the Greek islans – it is pretty flaky, and keeps dropping out, so the last think i want to do is to update the books while using it.
      But I will check as soon as I have a decent connection. Going to Italy in July, it may be better then.

  2. I started following your ITM strategy around summer of 2021, and stubbornly was hanging on the the ideal that I could make monthly income working with option spreads, and following other programs. Last fall I abandoned my ambitions of being a great options trader, and moved about 80% of my portfolio into SPY and QQQ following your ITM Money strategy. My account has performed very well, and I have to say that in the latest April down turn I held my ground and stuck with the options, and I have to say it was hard to not sell as the market was heading down day after day. I was determined to hold out to an eventual death cross if it was going to happen, and then in May I was rewarded as my account came back strong with eventual new highs. My questions to you is this. If we are being aggressive and following the turbo charged part of your strategy with say 15 or more contracts in play, how do you manage the drawdown when the market starts going into a correction? Maybe it’s just me, but it seems that Calls that you roll up to that are 60% leveraged really move fast on downturns, and I was wondering if you used any other trigger points to take some profits on the way down, like maybe at a 10 SMA crossing under a 50 SMA. That is just an example. I am just looking for ways to not lose so much ground when the market go into a downturn. Once again, thank you for your insights and time you spent putting this strategy together.

    1. Hi David – I seem to remember this question – either I have already answered it, or I have missed this and it has been on the queue for some time – in which case apologies.
      To address your question about drawdowns – yes, they are terribly uncomfortable. and you can limit them by getting out quicker, say on a 10/30 cross.
      BUT – and it is a big but – this means that you are trading on the 10/30 cross and back testing shows it to have pretty disastrous results.
      I often get asked ‘why don’t yu get out on the 10/30 and get back in on the 10/200. At first this seems reasonable – but if you think about it it doesn’t really work. If you get out on the 10/30 death cross. but the 10/200 golden cross is still in force what is your ‘get back in’ signal?
      I have backtested 3 SMAs 10/30/200 and 10/50/200 and several variations – dismal results, I’m afraid.
      The strange thing about the 10/200 is that it beats everything lse I have tested. Of course, the backtesting goes from golden cross to death cross, and people join along the way and might be unlucky and get in at the top of the market, to watch it then drop. That’s bad, but it doesn’t negate the back testing.
      I’ve been thinking of different strategies, based on ITM, but with tweaks. I need to backtest them, and I won’t be doing that on a laptop while on hiliday. But I’ll keep everyone posted.
      Hope this helps.
      I have

  3. Hi Heather, I am new to investing. But I am now starting a second book of yours. I know you mention that many people who charge for their stock knowledge is really not worth it. I was wondering if you heard of this company and if you would recommend it? Thank you. April

    1. Hi April
      I hadn’t heard of him – there are so many like him! He refers to himself as ‘Peter the Great’ and has been around for a while, selling ‘courses’ and recommendations in newsletters. Before wealth building publishing he ran something called ‘Cashflow Heaven’ and not surprisingly doesn’t publish any results, just some handpicked trades in hindsight.
      The strategies he recommends are the usual: spreads (credit / butterly / calendar / vertical) and iron condors.
      His approach, known as “The Winning Secret,” involves selling short-term (10 to 17 days) out-of-the-money credit spreads. For bearish trades, he sells out-of-the-money calls, and for bullish trades, he sells out-of-the-money puts. We look at these from time to time, and unless you are supernaturally lucky in your selection of stocks then they are not worht it. BUT – it is always easy to find good trades when they are in the past!
      The only result that I can find for him is that in 2011 his portfolio lost 37%.
      I am afraid that I can’t recommend him or his ‘strategies’ – in fact, it was people like him who caused me to write my books – I had seen so many people sucked into ‘strategies’ like this and then losing their entire stake.
      Sorry – would love to be supportive – but suggest you give people like hima wide berth.

  4. 1 Call SPY 525 strike 6 months out = 3000.00 / where am I missing what you’re doing? What page? Randy

    1. Hi Randy – the bid / ask for 525 strike dec options is 34.57 / 35.21, so yes around $3,500. But this is ATM, which is not in the ITM strategy.
      I am not sure what you are asking – could you calrify?

  5. Heather,
    Does the option (In SPY or SPYG) to be purchased have to be within 1% of the current price? I ask, because when I chose a strike price of 50-60% of the current actual price of SPY and add the premium cost, I keep coming up with a total just outside of the 1% margin. Am I doing something wrong? Or can I be beyond the 1% margin by several dollars?


    1. Hi Erich – the figures are a guideline, it is not always possible to get a strike at exactly 505 or 60%, and sometimes it can be over the 1% / 2% guideline.
      I have just looked at the SPY chain for December and these are pretty cloes:
      current strike bit ask midpt Effective % above % strike
      528.39 270 263.55 265.03 264.29 534.29 1.12% 51.10%
      528.39 320 215.44 216.87 216.155 536.155 1.47% 60.56%
      Hope this makes sense – comments dont allow cutting and pastin tables!

  6. George Halongton

    Dear Heather,
    Thank you for your weekly and timely blogs. I learn a lots by reading them. The weather in Los Angeles starting in June is still gloomy and the sun does not come out yet until the afternoon. The weather is very strange indeed. Once again, thank you so much for updating us weekly the stock market conditions and the ITM methods.
    George Halongton in Los Angeles

  7. I’m new to your site so this question has probably been asked but I don’t know the answer. I invest in the QQQ’s and through my review they have out performed SPY. So wouldn’t using ITM on QQQ’s also preform SPY?

    1. Hi – I use ITM on QQQ and it has worked beautifully for the last few years. I wanted to keep the book as simple as possible, and based on rigorous backtesting which has all been done on SPY and SPYG, but not QQQ.
      I have been planning to do it for a while, but I am actually a bit fed up with backtesting and keep putting it off.
      But, yes, using ITM on QQQ has performed very weel, I just haven’t confirmed the results with backtesting.
      Hope this helps.

  8. Hi Heather, How are you doing? I’ve been reading your books and I love em. I am Xiong, and I am 29 years old. I’ve always loved investing and have been in the stock market since 2 years ago. I love your methods. I want to buy some contracts for 1 year and possibly roll-out if the year does not go below the 200 MA. Do you think it is the best time to enter the market right now or wait till it dips a bit?

    1. Hi Xiong, I have never found that waiting for the market to dip ever works. It tends to take off without you and you never get on!
      Right now the market has dipped slightly, so probably a good time to get in – but as with everything in the market there are no guarantees.
      Hope this helps.

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