Option Trade Busts

Discussion in 'Options' started by tradingjournals, Jul 30, 2011.

  1. What are the conditions under which an option trade could be busted? Please provide links to sources of information, such as exchange. If a stock trade has had busted trades, could the option series trades also get busted?
     
  2. Assuming you are focused on stock options, your counter-party is the OCC, option clearing corporation. They have an 800 number and vast website of information. google their number or do some digging on the site and you will likely find what you are looking for. Plus you will be getting it from THE source directly.

    I have been through a lot of trading halts and from my experience option trades don't get busted like stocks. they may get settled in the case that a value can not be found but you can find out all of that from the OCC directly.

    Best

    Robert
     
  3. FSU

    FSU

  4. rmorse

    rmorse ET Sponsor

    Rules for the NYSE AMEX: http://www.nyse.com/pdfs/Rule 975NY Obvious Error Rule..pdf

    If you're looking for a price adjustment, you fight to the end. If you're looking for a "bust", the situation is difficult. During the time period that either side is looking for a bust, what if the trade goes your way and now you want it? That 30 min. can feel like a day.
     
  5. Does it happen regarding specific product (such as index options, specific equity options, etc.) or does it happen regarding different types of options? Also, do they bust your trade ("nullify" the trade so that you return to the situation you were before the trade) or do they just adjust the trade to reflect a certain price? What is the time period after which they bust or adjust your trades?

    It's very strange if it happens to you all the time, "bust" and "adjustments" should be relatively rare.
     
  6. rmorse

    rmorse ET Sponsor

    They are rare per person, but not rare per day. Many times they occur on the opening when a market maker sends out a bad quote.
     
  7. and in such cases does the exchanges usually just adjust a trade to reflect the correct price or actually nullify (or "bust") the whole trade? it seems reasonable to me that "bust" a trade will be very rare as compared to adjustment of a trade, since it could have worse consequences than just an adjustment of a trade. For example, if somone sold to close its option position, and with the proceeds received he immediately bought another option position, then if the trader is notified that the former trade was bust the trader can find itself short of money regarding his new trade, isn't it (and in adjustment he will just have to add the adjustment amount)?

    also, what are the timeframes during which a trade can be bust or adjusted?
     
  8. rmorse

    rmorse ET Sponsor

    You'll have to read the rule. http://www.nyse.com/pdfs/Rule 975NY Obvious Error Rule..pdf

    Sometimes you can't adjust. What if you're bidding 1.00 for a put trading at 10.00. On the open, the best bid on a market sell order was your bid. The second after the sale, the market goes from 1.00 - 15.00 to 9.75-10.00. The seller might claim the change violates the rule and the seller is entitled to 9.75. You're 1.00 bid. They can't make you bid higher. Your trade would be bustedand your order would be reestablished.
     
  9. What attributes of Lightspeed make up for that?
     
  10. If I was filled on a two-leg spread order which was submitted to the exchange as such, can the exchange decide to bust just one leg of the spread and not the other? Or any decision to bust a trade which was submitted as a spread order should be made regarding both legs? I am asking it because if the exchange will bust only one leg out of the two which were included in the spread, I may suddenly find myself with an unblanaced positions that could have many other consequences (such as margin calls).
     
    #10     Jul 31, 2011