can options trades be broken?

Discussion in 'Options' started by thelost, Jul 11, 2008.

  1. thelost


    for example there is no bid or ask then i put an unreasonable offer implying like 1 million volatility and someone takes the other side can it be broken?

    or if somehow i trade more than 3% from the market can it be broken?
  2. TYtrader


    yes, trades can be canceled after the fact if there has been an error. But, I would suggest never entering an order that you don't want to get filled, even if you think it's ridiculous. You just never know.
  3. teun


    Probably trades can only be broken by the professionals (the other side).
  4. Try selling options for outrageous premiums. During times of high volatility you may even get a fill :D
  5. dmo


    I get emails all day long from CME about busted trades - such as the following:

    "17:00 - 17:05 CT. Trades busted. All trades in 6 C U 8 above 9944 are busted
    Effective Time: 17:27 Central time"

    The typical reason a trade is busted on the floor is if it "went through" a broker. For example, let's say I'm a broker in T-bond futures, and I have an order to sell 100 @ 115'04. On the other side of the pit there's a one-lot trade @ 115'05. Now I'm screwed, or "hung" in pit parlance (refers to a symbolic rope around my neck, not my manliness). If it traded at 115'05, I should have been able to sell at a lower price, right? Unless it's a fast market at the time, I'm "held." That is, I owe my customer a fill on all 100 contracts at 115'04.

    The solution is for me to go crying to the pit committee chairman and beg him to bust the 115'05 trade. If he does and that price is erased, I'm no longer held.

    The above notification of a busted trade took place after 5:00 pm Chicago time, so it must have been an electronic trade. Since the pit scenario I outlined can't happen on the electonic, I'm not sure why they would bust a trade there. Looking back at my notices however, the busted trades that occur outside of floor hours all seem to happen right at about 5:00 pm Chicago time, so it must have something to do with some problem connected to the opening.
  6. That's a good question that OP has asked. Let me present an example.

    Let's take ES futures:
    Expiration is July 18, 2008.
    Lets say you want to sell 1100 puts for 0.25. But instead (by mistake) you sell 1100 calls for 0.25. Now the close for the 1100 calls was 140.20 but there is no bid higher than 0.25 - so you mistakenly thought the calls were puts and sold them.

    Would such a trade get broken? It would result in an instant 7000 draw down per contract for you.
  7. Market makers have computer programs that monitor the bid/ask for outrageous offers, and get them like tigers.

    Even without pushing a single keystroke.
  8. 50_Bip


    I recently went through an episode just like this in YM options, and my trade was not broken. My error resulted in a $7500 draw down.

  9. dmo


    Yes, the bots are very sophisticated. I was recently trading a very illiquid, far back-month option. The market was 2.70 bid at 4.50. I put in a 3.50 bid - and it was hit INSTANTLY. So obviously the bot was programmed to hit any bid above a certain level - but to not show that level so as to allow for the possibility of people putting bids higher than their true offer, and offers lower than their true bid.

    Another trick of theirs is to "piggy-back" on your markets. For example, again I was trading a far-back-month option that was 3.50 bid at 5.50. I offered 10 at 5.30, and immediately saw that there were 20 offered there. I lowered my offer to 5.20 - and again, immediately, the screen showed 20 offered at 5.20 (I was only offering 10). I kept lowering the offer for my 10 contracts, and each time the bot lowered its offer with me. Finally at 4.90 the bot didn't follow - only my 10 were offered. In that way I could figure out what the true market was - quite a bit tighter than the market that showed.
  10. Here's a funny bust story. I was trading options on Taser some years ago and went long some puts. Got a bad feeling so sold them at the bid using Smart with IB without noticing the ordere was filled with the crooks at Amex. Then decided I was being a yoosie and bought them back. Should have stayed with my gut feeling cause the stock jumped up big time. Then to add insult to injury I get a note later from IB that the taser options traded at Amex were busted because the mm was complaing about a bad feed but when I bought them the 2nd time minutes later that trade was standing.
    #10     Jul 16, 2008