Much like the what happen in Equities...for those who where trading when Fractions where in play. Pennies helped the "Public JOE IDIOT" not the traders. It killed the Spreads. No to be rude to most of the traders on ET...but I have a feeling 1% actually trade for a living after reading many of the post on this site. Why do stocks move as if Paint was drying, penny by penny. Hummm....many asked what happen to the 4/5 point moves in Equities? It wasn't not 9/11 that killed the moves, it was Pennies. I trade options, spreads give you the oportunity to make a nickle or loose a nickle. Period. For me, the risk of making a nickle or lossing a nickle is better than making a penny or lossing a penny. Penny spreads in options are designed for the amatures not the pros. Efficent markets are not where you make money...PERIOD. Efficent markets allow you to, possibly eaak out a living. For those of you who are cheerleaders for penny qoutes......I hope you make bonus in your day jobs because odds are, your gona make squat with your trading hobby.
OK , my final prediction : ONLY stocks with current 5 cents spread will see a penny action in the "normal" trading environment. Prior to event its all open. Just like many stocks that trading at firm 20 , 25 cents spread seeing 5 and 10 cents on the day of report. This has nothing to do with algorithm and everything to do with supply and demand on the days with unusual volume vs average.
Hey ERoptions, which market is it that they move a penny at a time? You can't be talking about the US market. LU and SIRI maybe? Plenty of fast movers, 50 cents - $1 in a short timespan. You might be confusing a normal market with the Nasdaq Bubble where stocks that were really worth 3 cents traded for $300. Those would move in $5 chunks. There's plenty of movement even with the penny spread. You just can't make MONEY by playing off a spread. Big diff.
The proposed pilot starts with qqqq ... which are already a 2 1/2 cent market with split strike fills. Then each exchange submits 2 pilot names. So the pilot could have 13 names overall. Slotted for late Jan 2007.
I trade SPY options. Lately the spread for options < $3 has been $.15. Retail traders occasionally step in and narrow the spread to $.10 (with size of 10 or 20, and that's fine for me). If the new rule will narrow that to .07 or .08, essentially splitting the spread in half, I'll take it.
That's the way I picture the process evolving. I will often step in the middle just to be out front and first in line. It's common to see a few people leapfrogging each other to be first up. Whether you are buying or selling, smaller increments are a good thing.
This "leapfrogging" will be automated in the market-maker's algorithm. When you bid a penny ahead, you will get leapfogged by a market-maker algorithm if it's a good price. If you are alone at the top of the book, it is because no algorithm wishes to join you, your price is not a good one. When you cancel, after being stepped ahead of (which will be often in a fast-moving penny environment), you will get a cancel fee. Market-makers can make millions of penny-denominated price changes in one trading session. They will not receive the cancel fee. In addition, the options exchanges also wish to remove your priority on the order book as a public trader. 4000 INTC options will likely be ahead of you on the order book. If you do get it, you won't want it. These are all option exchange or option firm proposals. Will they attempt to enact rules that remove money from their wallets? No. Your option profits are what they are shooting for. The only possible way to stop this is to comment to the SEC.
Thank you again for valuable input. Perhaps a letter can be drafted, with fax or email of SEC, and tens or hundreds of ET's can place their objections.
Given their competitive advantage in linking the option pricing to the underlying stock, it would be a pity if the retail customer couldn't at least get this one small advantage for their size trades. In short, you have my support.