Options trade execution question

Discussion in 'Options' started by MegaDeth, Aug 29, 2009.

  1. MegaDeth


    I trade options with Interactive Brokers and been seeing some strange execution behavior. Can someone with more knowledge and experience explain if this is legitimate?

    I had an order to buy a FOTM SPX option for $0.05. Mine was the highest bid and the only order. Yet, after a couple of hours, there was a trade for $0.03 and my order was not executed. I called IB about this and was told that the trade for $0.03 was part of a spread order and that is why someone else' trade got executed while mine did not (even though I had a higher bid for it). Is this legitimate? Doesn't the NBBO require my trade to be executed ahead of the other order since mine had a higher bid even for spread trades?

    Any input appreciated. Thanks.
  2. No NBBO on SPX since its a single listed option. They technically should not have printed that leg of the spread through your bid but by the letter of the law they can
  3. ammo


    how does ib know it was a spread leg, or is that a standard answer
  4. tman


    I experienced this when trading SPX options with Brown & Co years ago. Their compliance officer explained to me that spread orders can trade through a posted bid. I couldn't believe it so I confirmed this with the cboe. You can request time and sales from cboe to confirm that the trade at 0.03 was indeed one leg of a spread.
  5. IB does not need to know. When the spread is executed on the CBOE its gets posted to the tape as a "spread" and therefore since the SPX is a single listed option the prices of the individuals on the spread can trade through. ITs not an IB issue thats the way the market on single listed options works
  6. I noticed this a lot. Spread orders can really distort the B/A and individual legs of the same spread order can be entered at much difference fill prices.
  7. its a spread so it does not distort anything, only the net price of the spread matters and on a NBBO option they're not going to print through other orders
  8. MegaDeth


    The trade price, although part of a spread trade, does show for the last price, which does skew the bid/ask for that particular strike price.
  9. Does anyone know if the CBOE or other option exchange qualifies it's time and sales records to indicate a spread trade ?
    I never bothered to check this out.
  10. Theoretically all spread legs would be marked on time and sales
    #10     Aug 31, 2009