say you have a butterfly.. you are trying to sell.. how does the priority go.. say you post a sale at the ask... say that spread .. 12.55-13.25 say i post a sale of 13.25.... or even say 13.15 how does the order fill go..
Your looking at the National Best/Bid Offer (NBBO). The complex order books(COB) don't have to acknowledge that. Depending on your broker, your goes one of two places. It either goes to the COB on an option exchange or sit in the system until executable in the market or in their option dark pool. If your order is sent to a COB, your customer order maintains it's position based on price then time. Best price executed first. First order in gets done first. Your execution has nothing to do with the prices of the individual legs that your looking at that make up the NBBO. The market makers that monitor the COB have their own values for spreads. It is always possible you will get executed with another customer order. That's why you need to be on a COB and not held in an option's dark pool or broker's system.
i see i see... now would you do that by routing the order... instead of using smart.. or in the misc section of the order ticket window... do you use IB>?
Not for spreads. I prefer to have a shot at spread orders from the street, not just trade with other IB customers or Timber hill. These wide spreads are very difficult to get done without paying something to a market maker. They need to see value.
so i guess my question is how do you get to the complex order book.. and circumvent the market makers at IB
You have to change you option screen from SMART to CBOE or ISE. You will see the option markets from these exchanges. As you set up your spread, it will ask you at every point are you sure you don't want smart route. Choose "no" each time. Sometimes the order is still rejected at the end. If it goes through and you get an execution, your rate will be $1.00/contract and they might not pass on credits for adding liquidity. You have to ask. If the markets are wide, try splitting the order between the smart route and the ISE or CBOE and see what happens.
i'm going to try that actually.. just for good measure.. i'm not trading any size.. but i'm curious about this stuff.. thanks!
Note that you can actually see all the spreads in the CBOE cobb here http://www.cboe.com/cob/cob.aspx
A-only if your order is sent there.Most retail "smart" orders are first sent to an option's dark pool were someone gets first look. Most large institutional spreads are not on the COB but are shopped at firms like GFI and the many other on floor and upstairs institutional brokers, then crossed on the floor. B-the public will never beat an automated system to the orders that are worth trading and have value to the current market. When you view those orders, you see the crap that no one cares about or the orders away from the current market.
That makes a lot of sense... market makers are suppose to have an edge.. the dealers advantage.. that's healthy mechanics... there's a cost to liquidity.. pay up!..... of course you wanna market your order the best you can