Trying to understand what's going on here. I'll be watching the contracts for a given expiry date, and then out of nowhere, a bunch of the Ask sizes will go to 1. Like in this image below, which shows the Quotes for a series of May 2016 Puts. All of the other Bid and Ask sizes for this underlying are typically odd numbers in the 100 to 500 range, but every once in a while, someone puts in a bunch of sells with an Ask size of 1. There seems to be a pattern to it too (sometimes they just show up en-masse near the end of the trading day). What's the rationale here? Best I could think of, is it perhaps being used as some sort of low-risk 'tripping' mechanism? Whereby, say, if quotes are rising/falling quickly, they're willing to sell a single contract that will act as a trigger for some other larger order entry/strategy? But if that's the case, why not just use the underlying SP or the regular Bid/Ask as the trigger? I don't understand what the 1 Ask size accomplishes? Thanks!
The larger numbers you see are mostly market makers or bids/offers from computers, the "1 lots" are actual standing orders from individual traders. When the market starts to gyrate and move quickly, the market makers "back off" their quotes - leaving only the standing limit orders exposed.
Yes, I understand that (about the large numbers being market makers / computer algos), but it's still somewhat strange that all of the very-small-lot quotes are for 1 contract. Not 2, not 5, always 1. Moreover, as I wrote, oftentimes all of the 1 lots often appear at once, as though they're being placed by the same trader and all at one time. It's NOT just a matter of miscellaneous 1-lot orders being exposed by the natural ebb/flow of automated/MM orders...someone seems to be specifically placing them inside the existing quotes, often all at one time. Was just wondering whether it's part of a specific strategy and what that strategy could be.
---Was just wondering whether it's part of a specific strategy and what that strategy could be.---even if it is a part of someone's strategy,trying to understand why someone is placing 1 order is pretty close to trying to understand why there any order at anytime on whatever security was placed. here..it could be a large order with only 1 contract displayed. now what? do you know,if they opening a new position or closing existing one? or maybe they are trying to hedge something they hold overnight. what does it mean to you? NOTHING you can keep on guessing all day ,every day
I don't, of course, expect to be able to reverse-engineer some masterful investing strategy; but I like understanding things, especially those that seem odd at first glance. Thought perhaps what I'm seeing was a familiar and well-worn options-trading thing, and that someone might reply with "oh yeah, that's a frequent thing, it happens when/because ______" But the lack of such a response indicates that it's not in that camp. But today, once again, a dozen 1-lot orders showed up ~30 minutes before the end of trading on a series of contracts, a pattern I've seen for at least the last couple weeks like clockwork.
Not quite sure I understand the question...I'd have to specifically have my eye on the quote monitor when the 1-lots show up to know that (IB has somewhat crappy software that doesn't make doing tick-by-tick historical forensics easy, or perhaps even possible.) So I don't know exactly what the bids/asks are before they show up, nor whether the 1-lots move them. What I can say is that the 1-lots are being placed inside whatever the existing spreads were, because they show up and are all the lowest Ask quotes on each contract (as you can see in the screenshot in OP)...but what the next-closest Asks are, I'm not sure. Why do you ask / why is it 'important'?
Right, I had expected these to be orders that narrow the spread, but considered the remote possibility of the larger bid/asks dropping out and revealing just the 1 lots (which I don't think it is). Anyway, perhaps these could be orders trying to find the midpoint that market makers might actually hit? There's also a manipulative method where the spread is jacked around bunk orders to temporarily create a new "mid" such that resting orders on the other side are more likely to be hit (since they're closer to the new mid). I believe someone recently got busted for that specific tactic but in this case it could actually be someone testing the "mid" waters. It's unlikely that a bunch of retail 1-lot traders are placing orders in multiple strikes right around the same time.
Yup, that thought crossed my mind as well: i.e. the idea that it's not so much using the 1-lot as a 'trip wire' for some larger order or strategy, but rather an attempt to manipulate the MM's Bids/Asks, one purpose of which could be, as you note, to create a new midpoint. For example, I've noticed in the past that MM's sometime auto-react to your orders by changing their quotes: e.g. if Bid/Ask is 10 x 0.60 / 10 x 1.00, if you place a 10 x 0.65 Buy order, sometimes the MM will 'jump' your order and move its best Bid to 10 x 0.70. Or sometimes it'll just 'match' yours, so that the best bid shows as 20 x 0.65. But what did someone get "busted" for doing? And what was illegal about it? In my example above, if I'm putting in a legitimate bona fide bid of 10 x 0.65, and the MM beats mine with 10 x 0.70, why shouldn't I be able to unload 10 contracts at 0.70?? Sure, perhaps it was my intention all along to Sell 10 contracts I was holding but wanted to 'goose' up the MM's Bid by $0.10...but my 10 x 0.65 was nonetheless a bonafide, executable Buy order that someone could have hit, right? Or to put it another way, the MM jumped my 0.65 Bid for the sole purpose of trying to get me to leapfrog his to 0.75, right? IOW doing exactly the same thing that I'm doing...turnabout fair play, no?
It's considered illegal because it's chucked under the same realm as spoofing. Even spoofers have bonafide orders exposed to risk but "intent is not for the orders to execute." It's basically pro-algo/HFT/MM bullshit regulation. I'll see if I can find the story on the guy that got nailed for midpoint manipulation somewhere. Update: so it turns out my memory was wrong on what the actual manipulation was, as it wasn't just jacking the midpoint around... but here you go: http://www.bloombergview.com/articles/2015-12-03/tricky-twins-spoofed-trading-computers I have a feeling these 1 lots you are seeing *are* trying to game MMs though.