I placed a few orders to trade butterflies (2 contracts closest at the money, 2 contracts one or two strikes away on the May monthly contract) today for ORLY, AFL, and AYI. All orders were limit orders for a credit at the midprice. None were filled, but they were only active during the last hour of trading. I usually only do single or vertical spreads and I can usually eventually get filled at midprice, even on less liquid / less active stocks. I haven't done many multi-leg spreads. How typical is it to not get filled at midprice on stocks such as the ones I previously mentioned? How close would I need to get to the ask if I want to have a good chance of getting filled sometime during the day?
Thinkorswim was quoting between 8.xx and 12.xx for ORLY for my butterfly (250, 260, 280). I entered my order at 10.45. The 250 put is 6.30 bid and 6.60 ask, 260 is 10.60 bid, 11.30 ask. The other two stocks had narrower bid/ask spreads.
So mid was exactly 10? or 10.45? Those spreads seem fair, but wide... so I wouldn't be surprised if you need to hit 0.40-0.50 below the mid in the combo... The quote TOS gave is based on the aggregate b/a prices of the legs I assume?
I think earlier I calculated the midpoint to be around 10.30 to 10.60. It was jumping around a bit so I went slightly high thinking that there's a good chance that I'd be close enough. I was wondering how TOS calculates the value or estimate for the combo. I suspected that it was just the midpoint between the sum of bids and sum of asks (spending on wether the leg is bought or sold), but was hopeful that maybe it was the last execution for the same combo. Someone on here mentioned that the exchanges have a separate order book for combos. So it's possible to maintain a last executed price for combos, but would likely be stale. I'll re-enter my orders at the beginning of day tomorrow and see what happens. I don't mind putting these orders in the night before as it's a defined risk trade and butterflies shouldn't move around a lot until we get closer to expiration. Maybe I'll be proven wrong.
If a market maker does not see any edge to the other side of your trade, it will be hard to find a buyer until you lower your price. To have a chance of a "customer" randomly doing the other side of your trade will require very active options like QQQ, SPY and AAPL as examples. A very high % of the time, spreads will be traded with electronic market makers that use what I call an electronic eye looking for edge.
FWIW, this discussion could have been on the SPX, for what I've seen lately. Even with some gyrations, and little pops in VIX, there still seems an extra bit of stingyness out there. I have spent a lot of time trying to load up on Apr19 SPX, as I don't like to work the ridiculous b-a spreads of the SPX monthly Apr20. Nothing. Yesterday, I gave up and went to Apr20s. I might still give up today, as I got nothing again, and skipping Apr28 (where I have 'enough' on for the time being), I went clear to May 05, and sold happily. (Verticals and broken-wing butterflies.) But to not be able to sell Apr19 or Apr 20 was quite frustrating. The alternative is Forcing The Trade, and I'm just unwilling. If the market swings or pops big in the meantime, I'll be there, but when the VIX is in the dirt, or when there is just no "take" on the other side, I will take my chips back off the table, thanks, and find a better game. Maybe debit call condors or put condors, just to get a cheap leg towards the action, one vertical at a time.
The mid price may not always represent fair value. I have seen many times where the displayed market may be 1 wide, say 10-11 and the "real" market may be 10.80 -11. I would also suggest directing the spread to the CBOE if possible. It seems their COB will generally give the best fills.
I submitted the same orders about 10 or 15 mins after market opened and I got filled. The only spread that I was not filled on at close to midprice was GM. It might have been the timing -- early in the trading day vs. late or it could have just been that today was a more active day for the markets. In any case, I try never to pay more than midprice or collect less than midprice on anything. Seems that it's possible to get filled on even less liquid stocks at midprice if one is willing to wait and perhaps take a day or two to get filled.