Large LEAPS Orders

Discussion in 'Options' started by thomas3133, Jun 4, 2011.

  1. Hello,

    I am interested mainly in long-term options investing (through LEAPS) and I am afraid that it may only be implemented with relatively small amounts of money (such as 100K) and not with respect to larger amounts (such as 1 million portfolio or even more than that).

    I suspect that when an order is submitted for a large quantity (say, 5000 contracts) if it could be filled at all (so there is enough liquidity) the market-makers will change the price substantially in the opposite direction (that is, increasing the price when I try to establish long positions and decreasing the price when I try to establish short positions). I assume they can do it and still keep the synthetic relationships since they just can increase or decrease the implied volatility that is embedded into the different strikes.

    Basically, I would like to understand if the increase of the sums involved may in itself turn the option investing through LEAPS to a strategy which cannot be implemented successfully. Also, I wonder if there may be a difference in this regard when using single orders (such as long call) versus spread orders (such as short vertical put). Thanks!
  2. what you fear (mm's raising price of option/iv) is what will happen with illiquid options. i've tried to accumulate a position in them before and i've just given up before even filling 25% of the position. i try to split the b/a and the order just sits there. then i raise by a penny/nickel and nothing. then hit the offer w/ a limit order for the max size that is showing (usually 10 cars). and guess what happens when i want to buy more? the price magically goes up w/ no change in the UL. my advice is to either stay away or if you have high conviction in the trade (meaning you want the additional leverage rather than just trade the UL) try and spread your buys out over a few days/weeks.
  3. Since you are talking about LEAPS, I would think you have the time to break your order up into smaller bits. Mutual funds have the same problem when moving into and out of stocks. When they try to unload or accumulate huge numbers in the open market, they cannot help but move the price.
  4. MTE


    There is no single rule here that applies to all situations. It depends on the particular option in question. However, you are not the only one with such a problem. As it has been mentioned above, funds and other institutional investors face this problem every day trying to get in or out of a big position in stocks, futures or options. The only way to deal with it is to break up the order and even then you might push the price against you.
  5. spindr0


    If your broker offers trading algorithms, using them may disguise the size you seek. They may not help if the option is illiquid since your purchases are likely to move the spread. Alternatives might include buying various strikes or selling a small amount of OTM LEAPS to offset the add'l slippage - however the latter creates some spreads and that may not be part of your game plan.
  6. sle


    Get yourself covered by a bunch of IBDs and quote them for the full size. In general, unless you are talking millions in vega, you will get prices tightee then the screens.
  7. Or, if that fails, spray :)
  8. Thanks for the response. What is IBD?
  9. Thanks for the response. Did you use spreads (such as verticals) or single orders? Does such spread (say, vertical spread) may may enhance the liquidity versus single option?
  10. Thanks for the response. If I use spreads (such as vertical spreads) instead of single orders will it increase my chances of getting filled at a reasonable price?
    #10     Jun 4, 2011