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Something strange happened with one of my positions recently, and it’s worth talking about because you might see the same head-scratcher.
I’m short a $134-$133 put spread in the Oil and Gas Exploration ETF (XOP). XOP was trading at $142, so my short put spread was sitting $8 or $9 out of the money.
That’s exactly where I want a short spread to be.
When I checked my platform and saw the position showing down 800%, I knew something was off.
After pulling up the chain and taking a closer look, the spreads on those options were just nuts.
The Real Culprit: Liquidity — Or Lack of It
I dug in to figure out what was happening, and it didn’t take long to spot the problem.
The bid-ask spreads on those options had gone completely crazy.
You’d look at an option and see it quoted at $48.60, refresh the screen and suddenly it’s $59, then refresh again and it’s back to $48.75.
The spread between the bid and the offer was so wide it made the pricing useless. The bid-ask spread was super wide, like $50 apart.
As wild as it looked, it was really just the market pricing for risk — market makers stepping back because the flow wasn’t there.
What This Means for You
If you’re trading put or call spreads on sector funds, don’t let your platform’s profit and loss (P&L) display freak you out.
Check the actual price of the underlying. Know your strikes.
If your short spread is still well out of the money and nothing fundamental has changed, a wild swing in your account balance is probably just a pricing quirk — not a real loss.
The lesson? Trust your levels, not the temporary noise.
When the bid-ask spread blows out, your platform might flash something alarming.
But if the trade thesis is intact and the underlying hasn’t moved against you, you’re fine.
Stay grounded and don’t let the screen spook you.
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Geof Smith
Geof Smith TradingÂ
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.Â
P.S. Don’t Let the Recent Gold Dip Fool You
I’m the one who nailed the Gold Supercycle call back in 2023…
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I’ll reveal the No. 1 trade to take advantage of the imminent run, the same one that delivered a perfect win rate last year.
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Disclaimer: We develop strategies to the best of our ability, but we cannot guarantee a future return. There is always a risk of loss when trading. Past performance is not indicative of future results. Since 12/05/2024, the trading approach discussed today has published 54 trade alerts. All 54 have returned as winning trades, for a 100% win rate. The average return per trade, winners and losers combined, has been 16.88% on an average holding period of 9 days.
