option fill Qs and observations

Discussion in 'Options' started by Abundance Magnet, Sep 13, 2018.

  1. so today was an interesting day... I had 2 fills that were filled just above the bid (buying). normally, I would need to get to the mid or higher to get the fill. these fills were instant too. they didn't sit on the market and then someone met my price. why did these 2 fills get filled instantly but were just a bit above the bid? I have the 2 level data as well... My guess is that there was either an order behind it on one of the exchanges that i didn't see, or maybe it was filling a spread...

    the second observation i had was where I only got 1 contract filled out of a larger order. eventually, I bumped my price and then got the remainder filled. It felt like the MM was playing games with filling just one contract and either leaving me with the remainder to be hanging, or i could choose to move to their price. Does this happen as well?

    as mentioned, most of the time my offers at just above the bid to buy, or just below the ask to sell are not completed. Today was unusual... in a good way of course but still made me wonder about what happens behind the curtain...

  2. tommcginnis


    And how wide was the market?

    If it was usually a dollar wide, and today (while you were in for a Buy), it was 50¢, maybe that's because some other retail was there before you. So, you go in at 60¢ thinking you're 'just above the Bid' when in fact, you're now 10¢ above the other guy, and above the Mid.

    Ah, well, we can't win 'em all.

    (Or, it's exactly as you wondered: a propitious meeting of retail Buy and retail Sell, where you were the beneficiary. Yayyyyyy!)
    Reformed Trader likes this.
  3. The bid and ask don't necessarily center on some "fair" value. They move with market forces. Offering up attractive premium in a cheap volatility market will get a fill regardless of what someone's willing to say they'll sell it for.
    dealmaker and tommcginnis like this.
  4. It was about a 10% spread Or less. I typically trade options with a 5 to 10 percent spread.
  5. Yeah, I get it. That why I've built my own price models and track the previous prices as well. Can't hold too many positions as a result but it gives me a good sense as to the market...
  6. So just an observation:
    Q's trade on 12 option exchanges
    The quotes flash a lot given the number of MMs streaming quotes
    NBBO ain't easy to maintain and therefore linkage is problematic
    Most MM's either price off the future or simply set their quote engine to match/improve depending upon their appetite
    Appetite frequently changes without a change in price when something else the option matrix trades and an MM will trade something to hedge something else they just traded
    Appetite can also be driven by a routing deal and a desire to NOT ship the order
    Quotes are pretty much driven by the three biggest MMs and a lot of the other MMs just drive from them
    If the options trades on a dozen different venues it is not uncommon for resting order between the NBBO to frequently get filled - especially if the size is not extraordinary
    Think of the days when the SPX options were only pit traded and EVERYONE in the industry knew the screen wasn't the real market
    Exchanges allow dark liquidity tied to routing deals so the quote becomes even less relevant in many market conditions
    There a lot more observations but at some point it just becomes clutter
  7. Wow.. You're just a wealth of information. Bottom line for me. . Just keep fishing when you're trading smaller lots.
    tommcginnis likes this.
  8. rb7


    Were you looking at level II for one exchange, of were looking at a consolidated (NBBO) level II?
    Because if you were looking at only one exchange, that's only 1 out of 15 option exchanges. A very small window.
    tommcginnis likes this.
  9. What's consolidated nbbo? I haven't seen that as a data feed option add on.. .
  10. rb7


    'NBBO' stands for 'National Best Bid and Offer'. All the quotes/orders of all of the 15 option exchanges are consolidated into 1 feed.
    #10     Sep 14, 2018