trade size vs probability of exercise?

Discussion in 'Options' started by bookish, Apr 6, 2017.

  1. Robert Morse

    Robert Morse Sponsor

    Maybe you can call or email me and explain this one. We have many clients that trade SPX and VIX. How does delivery method make
    All, as far as I know. Not sure why he thinks we are bad for that. We have many SPX/VIX traders and no one offer OCC TIMS without added risk, the OCC does not allow that anymore.
     
    #11     Apr 7, 2017
  2. Robert Morse

    Robert Morse Sponsor

    I'm not aware of any outside Flex options.
     
    #12     Apr 7, 2017
  3. bookish

    bookish

    Do you happen to know of any that use FIFO?
     
    #13     Apr 7, 2017
  4. Robert Morse

    Robert Morse Sponsor

    No clue, never asked and they might not tell me. That is one choice.
     
    #14     Apr 7, 2017
  5. Sig

    Sig

    There used to actually be a pretty interesting play that people would make on assignments where they'd purposely buy thousands of options that normally would net them 0, but because some funds and others didn't act optimally a few random ones were worth something. Because they were assigned pro rata, if you put in a huge order you'd get the most. They changed the process to keep this from working any more, so whatever the process is now it's probably designed around preventing that play. I don't remember the name of it at the moment, maybe one of our experts like Robert, FSU, or sle knows? I do remember reading the clearing house order which described in excruciating detail what the process was for deciding who was assigned, there's no discretion in it at all.
     
    #15     Apr 7, 2017
  6. Robert Morse

    Robert Morse Sponsor

    You might be referring to dividend plays. X-div the next day, buy or sell a DITM vertical call spread where the options have a large open interest. Exercise the long call, so you have a buy-write with what you don't assigned. You need very low commission rates and it helps to be a market maker. Many customers would not exercise because of the margin.

    Not sure if my clearing firm has FIFO or not. I only did this a hand full of times. Some traders only did this in massive size.
     
    #16     Apr 7, 2017
  7. Sig

    Sig

    Yes, that was exactly it! I vaguely remembered that MM mostly did it and now I understand why.
     
    #17     Apr 7, 2017