When is too many options, too many?

Discussion in 'Options' started by HappyTrader, Jan 19, 2018.

  1. I occasionally play around with options on equities, usually highly liquid stocks (i.e., Facebook, Google, etc.). I purchase and hold for usually a week to a couple of months (not day trading).

    When trading 1, 5, even 10 options... it's not a significant issue. But as I trade more and more options, I'm starting to be curious if there is a point that I need to change 'how' I trade?

    For example, I was looking at a volume chart on options that traded during the week, and volume is relatively low (averaging 5 on a trade, maybe 40 a day). Except when I did a single trade of 50 options, there is a rather large spike. Such that I can actually see my own personal trade on a volume chart, as it stands out significantly.

    To make things more interesting, it seems I'm the majority of open interest on that specific option.

    So far, not a big issue.. but as I move to larger purchases (100, 1000, etc.) do I need to change HOW I trade these options? Some of my concerns:

    1) Will I personally exhaust liquidity on the option if my trade is 100x the average trade?
    2) Will I inadvertently effect the price due to the larger purchases?
    3) Am I going to end up being flagged on CNBC by the Najarian brothers who think I actually know what I'm doing?

    I am unaware exactly how I can change my trading mechanism. I do not mean making multiple purchases of smaller lots, but do concepts exist for options such as:

    1) Blocktrades?
    2) Darkpools?
    3) Something else?

    Or should I just not even consider executing trades where I end up being 99% of open interest?

    Any ideas/feedback/suggestions would be greatly appreciated!

    Thank you!
    birdman likes this.
  2. Robert Morse

    Robert Morse Sponsor

    You are not in the ballpark of being concerned for liquid stocks like these. You will have to work your orders to get the best price.
    tommcginnis likes this.
  3. Jones75


    I look for OI with a bare minimum of 1,000 before executing any buys. Blending in the weeds suits me just fine.:D
  4. From my point of view, THAT'S CRAZY!!

    For equities, I'll take positions only up to about 0.5% of the average daily handle. That means, "I'm 1/200 of the entire global trading market".... me, one person... 1/200 of the entire daily transactions. Even that leaves me a little queasy about the possibilities if/when I might get into a rushed liquidation.
    Last edited: Jan 19, 2018
  5. truetype


    It's not crazy. I'm sometimes the total OI in a particular strike/expiry. Options are priced off a curve by the mms, regardless of volume or OI.
    birdman likes this.
  6. It's always a high risk to be so large as to "become the market". When things get "panicky", EVERYBODY IS SELLING INTO YOU! Can't imagine that being a risk worth taking or a good thing regardless of how you spin it.

    Hey... do what you want... it's your money.

    However... I'm not a good example of "how to risk it all to get rich quick"... more like, "Mr. Conservative, dancing close to the door.".
  7. truetype


    These are option positions I'm holding to expiry no matter what, after which I deal with the equities as appropriate.
  8. Then "liquidity" may not be an issue for you.... However, something has to be done with the positions at expiration if you're ITM. If you're 99% of the market, that may not work out in your favor.

    Of course I don't know how things might work out in your particular case. All I'm saying is that there is additional risk when you become a large part of the market.
  9. truetype


    I'm 100% of the OI of a particular strike/expiry, but a tiny % of the market cap of the underlying stock.
  10. Hmmmm... trying to imagine how that might be a good thing.

    Perhaps you can play that and let us all know how it works out...
    #10     Jan 19, 2018