Getting filled on Spread Bidders

Discussion in 'Options' started by murphmack, Feb 6, 2010.

  1. I was just poking around on ThinkOrSwim and noticed the spread book, I decided to take a peak and saw some really interesting things. There are quite a few people who would bid 100+ contract spreads for prices which would essentially make the trade riskless, I'm sure there are hundreds of different scenarios one could think of for spreads like this.

    I specifically notice TONS of debit verticals that sit at 0.05 bid when market would be 2.00+ etc. Why are people doing this?

    I was wondering; what are the chances of being filled on spreads like this? Does some sort of hiccup in volatility and options pricing allow for spreads such as these to get filled?

    One notable spread I'm looking at is BIDU:

    Selling March 340 Call / 590 Put Strangle
    Market price is 253.70, Guy is offering 575.00
    In such a massive price range the guy is looking to bank 3.25mil, whereby if the stock goes to zero the most he will lose is 120k, and upper B/E of 919.

    Any insights would be greatly appreciated.
  2. Can you execute against these orders or is it just posted there for information?
  3. It's an order book.. They are orders that people have posted to get filled on.
  4. I don't know if it applies to options but with illiquid stocks, in the pre-market you see some outrageous spreads and if you're careless, can pay through the nose (or sell poorly) if you enter your order hastily. Conversely, you're happy as can be if the dumb money hits your outrageous bid or ask :)

    Any chance what you're seeing in the spread book is GTC orders were entered some time back when prices were more realistic?