Does anyone know if Etrade, Datek, and IB actually trade their options when you place orders? I'm curious to see if some of them are trading from their own stash, while others are trading from the actual market? If anyone knows this would be much helpful. Also if anyone knows which of these guys is quickest with completing option orders. Thanks alot. Jammy
all of IB's orders are executed on the trading floor based upon best price. read the web site and order routing report for more detail. some firms will sell the order flow. i.e. they will route market orders to firm X who will trade against you and hedge via the floor. IB doesn't do this.
Those orders are exposed to the crowd technically; who is the quickest depends on the time of day, quantity of order flow, etc..
I am curious if someone can explain something to me. I was reading about butterfly spreads. I wanted to try one. I couldn't place a spread order with the order entry system I use. So I had to call my brokerage. I wanted to buy calls at one strike price, then sell 2 of the next strike price up, and buy one of the strike price above that: So I would look like this: (example). Buy 1 Sept xyz 50 call at 2.oo Sell 2 Sept xyz 55 calls at 1.20 Buy 1 Sept xyz 60 call at .75 So I would have a debit of .35 which is how I specified the price. Rather than dealing with the bid/ask spreads, which were both below and above the price I wanted to pay. Now when I asked if they could get the order done, and I said exactly how I wanted to do it (total price), I figured that I was buying the spread. I had a debit, and I was looking for the underlying stock to go up from $49. But I was told I was not buying the spread, but I was selling the spread. So my question is, is this the right terminology? I thought if I paid for something I was buying. And if I was selling something, I would be getting a credit. Can anyone explain this to me? Was the broker right? And how would doing the opposite work? If I was short the 50 and 60s, and long the 55, how would I make money? Would my upside be limited to whateve the initial credit would be? As I understand it, the way I entered the order, the max I could make would be $5 less the debit. So what is the purpose of doing the opposite trade if like in this example the credit would be small (35 cents for example) and the downside would be $5. What am I missing? I am sure I am missing something. Thanks, MarcD.
You are right ! The broker may not realize it but you are buying the a/b call spread and selling the b/c call spread which is a fly. Unless he is trying to leg you at a better price with another form of fly (iron fly or gut I think) either way the profit loss characterictics are similar. Your ? about selling .35 why would anyone do that? Well to make the 35 cents at the risk of losing $5. When underlying moves away from mid strike fly depreciates so seller would pocket credit. Read up on fly and different forms of it Here's is a good book- Charles cottle, -woulda,coulda, shoulda.
you were right.. you were going long (i.e. buying) a butterfly spread. whoever took the other end of the trade was risking $5 to make $0.35, and counting on the stock NOT going up. sounds like you were getting the better end of the deal. anyway, its not always the case that going long is a debit and going short is a credit. for example, with a ratio backspread (sell 50 call, buy 2 x 55 calls) sometimes you will get a credit, sometimes debit.