How do institutions buy/sell large amounts of options?

What exactly is the process? Can the option market absorb a huge let's say covered call sale? Does it have any effect on the underlying stock's price? Or do they have to match the buyers and sellers quietly so they don't disturb the price?

Something like 3 institutions own 9-11% each of Tesla. Let's say they don't want to sell the stock yet, but they want to keep writing CCs or vertical spreads on the position. How do they sell calls for 10 million shares on a high priced stock?

https://www.marketwatch.com/story/teslas-5-largest-shareholders-2016-08-03

 

An institution would likely use their broker's trading desk or a third party trading desk like BTIG. Those desks have access to a small list of large MM, a larger list of smaller MM and a group of hedge funds that focus on providing liquidity. They communicate over the phone and through a messenger service like Pivot, to "shop" the order. As a small market maker, up to 2010, I used AIM to respond to institutional option orders. I was required to respond with a 2 sided market for any request with a size of at least 100 up or I would be ignored. Most orders that came across were between 1000 and 10,000 and many paired with stock.

With regard to size, size is relative. Smaller players will respond to any order. Larger players only care about larger orders because they need that size to care. Any VERY large order will disrupt any market but those are rare. By VERY large I mean one that would take many days to hedge or would require a regulatory filing.

Bob

 

Bob, I see from your new signature the deal went through. Congratulations! Is Mark Gorton still involved day to day? I have a lot of respect for what he's accomplished as an entrepreneur.

 

truetype,

I'm not familiar with Mark Gorton. I did a FINRA Broker Check and it looks like he left Lime in 2011. I think that was around or just before when Wedbush bought Lime. https://brokercheck.finra.org/individual/summary/2394542

Bob

 

He founded lime. He also founded a file sharing service (like napster). He also founded tower research (a quant prop firm)

 

He's a brilliant, charismatic, visionary leader. I had the pleasure of speaking with him for a several hours a few years back.

 

Then maybe he can explain the name "Lime" to me.

 

I really like Robert Morse's posts very much. So much info and insight, almost every day. This forum would not be the same without him.

 

Thank you.

 

That's a good question. I'll ask our coverage.