Basic question re pit-traded options

Discussion in 'Options' started by garbo, May 28, 2003.

  1. garbo


    Could anybody give me some insights into how pit-traded options work?

    What I mean is: If you are looking at a thinly traded issue, how do you know what the current bid and ask are?

    I've been eyeing Euro options. I've made some $ off of the recent Euro run-up and I thought I could buy a Euro futures call option now to lock in some profits and still have some upside. But I'm baffled about how to go about it.

    I have Tradestation (besides IB) as a futures broker. They have this software called Tradestation Futures 3.0 and I have to say, compared to TWS it is a piece of dung. (At least at first sight, maybe I just haven't figured it out yet.)

    I can't figure out how to see a current bid and ask for, say, IMM Euro options, 116 Calls.

    Is it possible?
  2. Can't speak to the Euro contract you are looking at but see the same situation with Simex (Singapore) pit-listed options. The rule is if I need quotes on a thin issue I have to ask my full-service broker to get quotes from the options market maker (MM). Generally the MM won't provide quotes unless someone posts an order or asks for two-sided quotes.

    Barring better suggestions from others, I would suggest two approaches:

    1. Call one of your brokers, preferably a full-service futures broker, and ask them to get some quotes.

    2. Post a 'safe' bid/ask and see if the MM or others post on the opposite side or in front of you, after which you can adjust.
  3. jessie


    Your only real option is to call the pit for a firm size & price quote, and execute then, as the price is constantly changing with the underlying. If you are trading futures options with any size, you should know your pit broker and have headset access. In addition, you really need software that will give you accurate theoretical values, and should always consider those values, especially in thinly traded issues. Most of the CBOT locals and MM's I know use Microhedge, with price models tailored for their own views about skew, etc., so using that or something similar will give you the information you need. It's not cheap, but in thinly traded futures options, it's really an essential business expense.