I am close to hiring a programmer to program for me software to buy equity options at the bid and to sell same at the ask (moving with the stock price according to the delta). Before I finalize...does anyone know of such software out in the market, (sophisticated and inexpensive, no need full market scans)? Please inform on PM.
Thank you. But that probably means $1,500/month for the software, expensive data feed, and hosting for extra bandwidth. For that matter, RTS software as well.
What this will mean for you, I don't know. IB pops up windows and limits trade speed (pacing violations) when you try to API op orders. It's a pain... CBOE Regulatory Circular 00-139: SEC Approval of Prohibition Against Electronically Generated Orders Date: September 15, 2000 To: Members and Member Firms From: Equity Floor Procedure Committee The Securities and Exchange Commission recently approved a CBOE rule filing (SR-CBOE-00-01) that adopts a new Rule 6.8A. Rule 6.8A provides that members may not enter nor permit the entry of orders into the Exchange Order Routing System ("ORS") if those orders are (1) created and communicated electronically without manual input and (2) eligible for execution on RAES at the time they are sent. An order is eligible for RAES if: (1) its size is equal to or less than the maximum RAES order size for the particular option series; (2) the order is marketable FN1 or is tradable pursuant to the auto step-up feature 2 at the time it is sent; and (3) the order has either no contingency or has a contingency that is accepted for execution by RAES. Electronically generated and communicated orders that are eligible for execution on RAES at the time they are sent may be sent to the trading floor for execution by means other than through ORS, e.g., by telephone or through a member firm's proprietary routing system. Questions concerning this circular may be directed to Timothy Thompson, Legal Department at (312) 786-7070. Footnotes FN1. As defined in Rule 6.8, a marketable order is a market order or a limit order in which the specified price to sell is below or at the current bid, or the specified price to buy is above or at the current offer. FN2. An order is tradable pursuant to the RAES auto step-up feature if the appropriate CBOE Floor Procedure Committee ("FPC") has designated the class as an auto step-up class and if the National Best Bid or Offer ("NBBO") for the particular series is reflected by the current best bid or offer in another market by no more than the step-up amount as defined in Interpretation .02 of CBOE Rule 6.8.
That is IB's own system. To the best of my understanding, some exchanges don't have that restricition, and that the problem is successive orders to the same exchange.
It certainly seems like an outmoded ridiculous restriction nowadays. Especially with "smart"-type routing to different exchanges available. Anybody have any experiences/comments about electronic option order restrictions, like the CBOE's? It's easy enough to get around, but it would be nice if you didn't have to.
If the price of the software is a concern, then you should consider another strategy other than market-making. I wouldn't consider "rolling your own" when there are ISV's pouring millions into their MM autoquoters. There is no way to compete with the better back-ends. It's not as simple as posting a market and arb'ing the hedge. You need an edge in hardware and software, as well as a JBO haircut to make it feasible. You'd need millions to make a living under RegT.
The AMEX, and possibly other option exchanges, prohibits automated order entry for options. Manual input is required (mouse click). All option exchanges, except the BOX, prohibit you from being on the bid and the ask in options trading. All U.S. option exchanges have rules against patterns of trading that resemble market-making (repeatedly buying and selling in the same option). The ISE, specifically, recently threatened legal action against those who might attempt such strategies. Market-makers are allowed to move their quotes freely with changes in the stock price. Non-market-makers are charged a cancel fee for removing a price. I believe your model would continually remove and replace prices. The most liquid options - like the front month QQQQ's - have heavy public participation. Public orders are first in line for execution, and many of these orders are days old. If you get to the front of the line and actually get an execution, you might not want it.