I've been trying to trade odd lots of options contracts using limit orders and I've noticed two things. 1. It seems like even if I'm the best bid often nobody will sell me a contract. 2. It seems like even if I'm the first bid at a given price, and then the stock moves down and other bids pile on top of mine, its not first in, first out, it seems like everyone elses round lot orders will get filled long before mine does. It almost seems like I'm the LAST bid filled, and then only when the stock moves down even further and the market maker has no choice but to move on to the next (lower) pile of bids in the book. Am I correct in these observations? I'm trying to read between the lines of all the data flowing by on my IB TWS window. Is this all just, tough titties? The only way around it is to round out my lots to 10 (5?) contracts? (Hard for me to do that since the account is undercapitalized and I want some diversification, but its going to be even more undercapitalized if I keep facing worsened liquidity due to how the MMs are treating me). (Granted, 1. is not directly attibutable to the MMs, but it is a knock on effect if I am correct about 2.) Could any of you more experienced traders give us the benefit of your experience? You only trade multiples of 10 option contract? What do I need to understand about how the MMs behave and what rules govern their behavior?
forgive me, I misunderstood your post. Yes u shouldn't have any prob. with your odd lots; always got fills, but sometimes in two or more diff transactions with some time intervals between them.
There's no such thing as a "round lot" or "odd lot" in options. Granted, sometimes it may be easier to get a fill on a big order cause that particular size may be what market maker needs to hedge his/her current position. Now, just because you are at the best bid with 1 contract or 100 contracts doesn't mean that others MUST trade with you. Best bid is just that, best bid. If the market moves and the ask falls to your bid or below it then you will get a fill. If someone hits the bid then you will get a fill.
I'm with you so far, but I guess I'm looking for a little more understanding of how the market maker operates. e.g. do they have any injuntion to sell the bids (at a given price point) "first come, first serve" (if a buyer shows up)? Why are the bid-ask spreads so great? Does the MM have an incentive to keep them that way; how do they accomplish that; how exactly do they make their money?
In simple terms, market makers make money off the spread, buying on the bid and selling on the ask. Spreads can't be less than 0.05 as that's the minimum price increment.
Public always has priority over the Market Makers. So if the market maker is showing .10 x .20 (100 x 100) and you submit a 1 lot on the bid (.10) then you are the first to be traded at that price. But you have to compete with all other public orders on a first to post, first to trade basis. And of course remember that there are 6 option exchanges so it matters which exchange it trades on. If you are the only .10 bid on the CBOE and 1,000 contracts trades .10 on the Pacific Exchange... well too bad so sad.
Most of those don't have very liquid options. JBHT has had a whopping volume of 1 on the MAR 25C. That's most of the problem. I suspect (key word) the other part of the problem is the other orders you see coming in may be to complete spread orders. They will take precedence over a single-leg option order at the same price. It's often difficult to get a good fill with stocks with extremely liquid options. I've been waiting all morning for a MAR option fill on a stock that's traded 6M shares so far today. Note I said "good fill" - anybody can hit the bid to sell. This problem is amplified many times over for less liquid issues. I don't think what you're seeing is out of the ordinary.