It is a very unfriendly environment. Identify the most mispriced side of the spread and hit that first.
Thx for the tip. Do you find that the most mispriced side of the spread is often the leat liquid side? nitro
Being an IB retail trader with under $25K I have been trading options for the past 6 months or so and have experienced all the problems listed (except contract limits). But, I have found a way to use options to tell me which way the market in the underlying stock is really going to move with almost 100% accuracy on some lower volume issues by entering an order to buy an OTM Call at the asked price. If the order is filled immediately the stock always heads down, even if heading up at the moment. Also seems to work at the end of the day to tell which way the stock will open.
Be careful, I don't think that is going to work out for you in the long run. Your underlying assumption is that the MM in the option knows which way the underlying is headed; he may have a better sense than you but he does not control the stock. A small order in a natural market "should" fill, regardless of which side you hit. What is the size of your trade data set?
I just neter an order for 1 option. For whatever reason it always seems to work, at least with CCMP, PVN, and GMST. However, most of the time the order will just sit there with both bid and ask the same and may or may not fill before something moves. Like I said, it only works when order is filled immediatly so maybe the MM's or B/D's do know which way the stocks going or at least are very good at predicting.
With just CCMP, over 50 times in last two months, it worked 4 times last thursday. Due to daytrading rules I can't always short the stock, but it still helps with the more expensive NTM contracts.