IB, options in pennies ?? question--

just saw an ad in the wall street journal from IB stating that they trade options in pennies on the BOX, instead of the normal .05 and .10 spread. i am new to the intricracies of the option market, still on the learning curve, can someone explain this to me ??

thanks !

surfer

 

you can't bid or offer between the spread, but market makers can compete for your trade via price improvement. If you hit an offer, there is a price improvement period of a few seconds while your order is displayed. I have gotten occasional fills 1, 2 or 3 cents under the offer I was hitting. Of course, it applies to sell / hitting bid as well. I don't know what kind of size you can expect this to happen with, I mostly just trade 3 to 5 contracts.

 

Do you mean you can't offer/bid between the spread, or do you mean you must bid/offer in nickel increments.

That is, spread is $1.10 x $1.20, can you bid/offer at $1.15?

 

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Tony SD;
On the more & most liquid options you can ;

& actually sometimes get a fill @$1.15.



Good question Surfer.

 

you can send in orders to BOX in pennies by using the PIP.

 

thanks, def. can you further explain what the PIP is.

surfer

 

It's the price improvement process that BOX offers.
http://www.bostonoptions.com/pri.php

 

Great, now the options markets will become as bastardized as the stock markets.

When shaving was around, on any given day the best bid on SUNW and the like was X.XX8, and the best ask was X.XX9
Shaved to within .1 cents all day on every ECN. Now it's just like this on BRUT ecn.

Now the options markets will be locked in a penny spread all day if the daytraders get a hold of this.

 

In the new Beta TWS you will be able to particiapate in the BOX pip process. Option traders should find this a major development (except for some of the posters above who seem as if they would rather pay the spread ). Full details available here:
http://www.interactivebrokers.com/html/tradingInfo/orders/priceImprovementOrder.htm

 

Perhaps you should understand the PIP process before commenting. It's all about price improvement.

For example, this is how we will handle limit orders.....
For Limit orders on BOX - enter the limit price in penny increments. TWS rounds your limit price to the nearest listed increment (DOWN for Buy orders, UP for Sell orders). The Price Improvement Amount used in the auction is the difference between the limit price you enter and the nearest listed increment. For example, for an option whose price moves in nickel increments, if you enter a limit price of $1.08 your initial auction price is entered at $1.05 and the remaining 3 cents is used as the improvement amount.