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For the last three months I've been running a shadow P&L book alongside my broker's displayed P&L on every options position I hold. The results were bad enough that I changed how I trade.
Quick background. I sell premium on SPX weeklies and monthlies, mostly iron condors and strangles with some naked puts mixed in. Account is mid six figures, I'm doing anywhere from 15 to 40 contracts a week depending on conditions. Not a whale but not messing around either.
The experiment was simple. Every day at 11am and 2pm ET I logged two numbers for every open position: what my broker said the position was worth (mark to mid), and what I could actually close it for right then (best available bid for longs, best available ask for shorts). Then at actual close I logged the real fill.
**What I found**
Single leg positions: broker P&L overstated real P&L by about 2-4%. Annoying but manageable.
Vertical spreads: overstated by 8-12%. Getting worse.
Iron condors: overstated by 15-22%. This is where it gets painful. On a 4 leg IC where the platform shows mid credit of $2.80, my actual fills were consistently $2.55 to $2.65 on entry. Then on exit, the displayed "50% profit" target was actually only 35-40% when I went to close.
Across 90 days and roughly 180 round trip trades, the cumulative difference between what my broker said I made and what I actually made was just over $14,000. That's more than double what I paid in commissions over the same period.
**Why it happens**
Mid on a multi-leg order is just the midpoint between the best bid and best ask on each leg, averaged together. But those bids and asks aren't independent. Market makers price the spread as a package, and the package price is always worse than the sum of theoretical mids on each leg. The wider the bid-ask on any individual leg, the worse the compound error gets. On SPX weeklies with 3-4 wide markets on each leg, stacking four of those fictions together creates a displayed mid that nobody will actually fill you at.
**Three things I changed**
**1. I stopped managing trades based on displayed P&L.**
Old process: "close at 50% of max profit" based on broker's mark. New process: I calculate my actual entry credit from my real fill, then set a limit order for the exit at a specific dollar amount that represents my real target. The broker's green/red P&L number is decoration. I ignore it completely.
This alone was worth roughly 3-5% on annual returns because I was previously closing positions too early. What I thought was 50% of max was really 38%, and by the time I got filled at my "50% target" I was leaving another 10-12% on the table versus where I could have held.
**2. I started timing entries and exits to when spreads are tightest.**
The bid-ask width on SPX options follows a very consistent intraday pattern. Widest at open, compresses through the morning, tightest window is roughly 10:30am to 12:30pm ET, widens a bit into the afternoon, then compresses again in the last hour before the 3:30 close cutoff.
I used to put trades on at 9:35am because I wanted to "get positioned." That was giving away 10-15 cents per spread versus the same trade at 11am. Over hundreds of contracts per month that adds up fast. I now do almost all my entries between 10:30 and 12:30 and almost all my exits between 10:30 and 1pm. On the entry side alone this recovered about 40% of the slippage.
**3. I underwrite every trade assuming a 10% spread tax.**
If a trade shows a theoretical edge of $1.20 per spread on a risk graph, I model it as $1.08. If it doesn't clear my minimum return threshold after that haircut, I skip it. This killed about 20% of the trades I was previously taking, and my win rate went up because the surviving trades had a real edge, not a theoretical one.
**The counterintuitive result**
I'm taking fewer trades, collecting slightly less gross premium, but keeping more of it. Net P&L over the last 60 days is up roughly 11% versus the prior 60 days, on fewer total contracts. The edge was never in finding better trades. It was in stopping the bleed on execution.
**What I haven't solved**
Legging into spreads. I've experimented with selling the short strike first and adding the long wing after a favorable move. When it works the improvement is 8-12 cents per spread. But I've been caught twice with a fast move against me while naked and both times it cost me more than a month of spread savings. The math probably works over a large sample but the tail risk makes me uncomfortable and I'm genuinely undecided on whether to keep doing it.
If anyone else is tracking real fills versus displayed mid systematically I'd be very curious to compare notes, especially on wider products like RUT or individual names where the spreads are even uglier than SPX.