A typical presentation of this annoyance: Bid/Offer for a contract is 70 x $0.20 / 85 x $0.30. I submit a Sell order for 50 x $0.25. I'm the first Offer at $0.25, but others also submit Sell orders @ $0.25; I don't get filled right away and spread appears as: 70 x $0.20 / 125 x $0.25. I then watch the tape as plenty of contracts get filled at $0.25, but none of them are mine. My understanding is that this happens because of the multitude of options exchanges...and MY order is live on one exchange, while the fills at $0.25 I'm seeing are happening at a different exchange. (I use IB's 'Smart'-routing FWIW.) Is there any practical way to avoid this? I.e. I'd like to be the first to get filled at $0.25 (I was first to submit Sell at that price after all)...but short of submitting separate 50-lot orders to all the different exchanges (dumb, since they might all be filled, when I only really want 50 contracts to fill), I can't figure out how. FWIW, Sometimes, I'll even submit at a penny below the display increment; i.e. Sell 50 @ $0.24...and the contract will still trade through my order -- i.e. at $0.25 -- despite me offering a better price; though I figure it's the same problem re: fractured exchange landscape(?)
What Option exchange is the IB SMART router sending your order to? Is it one that provides a rebate for adding?
IB's SMART-routing sends orders to...well, any number of a half-different exchanges. And unless I'm mistaken, my order can actually be skipped around to a bunch of different exchange; i.e. when it's in "green" / active status, I can mouse-over the order to see which ECN it's live at...and it might say "BATS" when I do my first mouseover...and then a few minutes later, without me having done anything in the interim, I'll mouse over it again, and it'll be live at Mercury, or PSE, or whatever. I might be wrong about that (about it automatically jumping around the exchanges even), but I don't think so...regardless, when I use IB's SMART-routing, I basically have no say in where they send it.
You are lucky IB allows you to submit the price not at an increment of 5. For me when I submit the order at 0.24, the order gets rejected. In your case, if I really want to submit a lower price, I would have to submit it at 0.20. How do you get this special treatment?
This would take too long to explain this way, so I'll provide a short answer and you are welcome to call me tomorrow. These options look like they are not part of the penny pilot program. BATS offers a rebate of $0.25 to add and charges $0.50 to take. PHLX, for an example, does not charge either party if this is an equity options. If you were the buyer, and you could buy options and pay $0.50 extra or not, what would you choose?
That is the market maker trading against you. You have to remember the market maker probably, has orders on both sides of the bid and ask. When they match your price which is $0.25, you are now at the bottom of the heap. That is the reality. The fastest way to fill any order is to match the bid and ask prices. You will have to give up the $0.05 x 50 or $250 you are trying to save. At times too, the market maker lowers the bid if they see you trying to sell your contracts. The bid may be $0.20 and ask is $0.30 and now, they lower the bid amount to $0.15 or even $0.10. They are trying to lowball you into selling. What I do is just cancel my order. Unless, I am in a hurry, I wait the next day. Chances are good, prices will be more reasonable and back to normal. Market maker probably, now selling so, will demand a higher price.
IB is posting you on the exchange that gives themselves the largest rebate. Stop using their Smart router for posting, only use it for taking. Post up on an exchange that's cheap to take and you won't see this happening so much.
My hunch is that the fact that smart can reroute the order multiple times to different exchanges makes you constantly lose queue priority. Tricky to formulate an optimal strategy unless you are willing to take the risk of overfills.
I have to disagree with this. I would chose where I get the best fills at and what I get charged in net total execution related cost. Take or add fees/rebates alone do not tell the whole story. Most flow in this asset class nowadays is by large majority algo driven and many algorithms put significant weights on the volume, size on each level of both sides, and other dynamics when deciding where to route unless those algorithms purely are out for rebates. Market making and earning the spread and earning rebates is a completely different business. But that aside, it does not quite address OP, imo. The issue I think is very clearly either queue priority or fills at exchanges where OP is not currently resting his order,or both. I fail to see how levels of rebates and cost really address this issue (for reasons mentioned in the first paragraph). I mean, I think I understand your point. You seem to suggest that at those exchanges where price takers get executed more cheaply fill probabilities for price makers are higher, but I need to disagree with this one from own statistics I have been accumulating over time, algorithms look at much more metrics in their decision making rather than making a static choice of exchange where min(price taker fees).