what's going on with es options today?

Discussion in 'Options' started by newguy05, Oct 9, 2008.

  1. The es option bid/ask spread is so wide today, not to mention a lot of the quotes is not even printing.

    What's going on? is it because of reinstatement of short selling? When will the bid/ask come back to normal. thanks
  2. It has nothing to do with short-selling. Lifting the ban should make markets tighter, not wider.

    When given permission to widen markets, floor traders do just that.

  3. Johno


    Realistic response to Volitility! Think yourself lucky you've only got wide spreads, in the last few weeks apparently there were times on the ASX Options that you simply couldn't get a market!

    Best Regards

  4. But i thought the MM are required to provide a bid/ask?

    This is what i see in IB for es options, i dont know if it's a problem with IB or the actual quotes. For example: ES 1080P

    1) it will show bid:100 ask:107, which has a wide spread but is normal

    2) then it blinks and the bid or ask becomes blank for a few mins

    3) then it blinks again and now bid:60 ask:120

    4) and it keeps repeating like that throughout the day.

    is 2) and 3) due to the actual MMer pulling the bid/ask, or just IB system issues from high volume/volatility etc...

  5. Given the actual volatility of futures lately, it is not surprising to see incredibly wide bid-ask spreads.

    As market makers, even if we have a reasonable lean on a trade (have the opportunity to buy options on a low vol somewhere vs selling them on a high vol elsewhere), when futures are this whippy it is almost a guessing game where you will get your hedge off, so you need to widen your markets on that basis as well.

    Moreover, if you're in the pit making your market $4 wide on an outright at the money and brokers are hitting your bids or lifting your offers, there's definitely not much reason to tighten up, unless you're a fan of getting run over (which we're not).

    And as far as your previous comment about market makers being required to provide a bid/ask spread - the answer falls somewhere in the grey between yes and no.

    The exchanges have a "book" system, whereby a designated market maker is required to make two sided markets on a specified range of traded strikes, for the purpose of guaranteeing liquidity. This is called "running the driver," as it ensures a viable electronic market for all strikes in the series at that exchange, and also provides clearing firms with a reasonable estimate as to what positions are worth on a daily basis for mark to market accounting - the designated market makers are paid to do this. Last time I heard on the CBOE they are paid something along the lines of $75k a month (perhaps higher now, I am not sure).

    When markets are incredibly volatile like this however, there's no saying how wide the market maker will set the markets on their driver. And periodically I would not be surprised if their market was not two sided at all.

    That said - running the driver is usually a profitable endeavor for the market maker - as they can work offers on high vols and bids on low vols, and customers who come in with arbitrary price points happily pay the bid/ask spread and the market maker collects the vol spread in "edge."

    Have you called IB to inquire about the problem? When markets move as fast as they have been over the past couple of days, technology becomes pretty strained - it may have been slow servers all along.

    Interested in hearing what you find out...
  6. hi thanks for the response, very good info.

    I guess my main confusion was the 60/120 bid/ask, i know mm will widen the spread during current market, but this is just too extreme. I tried to contact ib, but usually by the time they check the bid/ask has come back to normal, and IB cs cant explain much. I guess you really need their development team to answer this.
  7. Possibility that the MM got hit for some option. The market widens out on all the options so he has enough time to update his market. Then after he updates, the old narrow market is posted again.