Why are there illegal option orders in the orderbook?

Discussion in 'Order Execution' started by earth_imperator, May 5, 2023.

  1. An option can never have a premium that is higher than the strike.
    But with some tickers/symbols the orderbook clearly contains some Ask prices that are higher than the strike, for example strike is 2 and Ask is 5.
    How come? Who can place such offers? B/c I cannot as my broker's system gives an error when trying to place such an order.

    These illegal prices are also a problem for IV calculations: it wrongly increases the IV since IV usually is calculated from MidPrice between Bid and Ask...

    I experience and observe such buggy option data even in broker-official "current" data received via broker-API.

    Update: above I mean Put options.
     
    Last edited: May 5, 2023
  2. qwerty11

    qwerty11

    No...
     
  3. Give an example, if you can :). Can also be some theoretical BSM parameters.
     
    Last edited: May 5, 2023
  4. qwerty11

    qwerty11

    stock is at 10, then call 1 is 9. So higher than strike...
     
  5. Oops. I forgot to say that I was meaning Put options.
    Can you give also an example for Puts?
     
  6. qwerty11

    qwerty11

    I don't know the MM rules (not relevant if you're not a MM) but probably they have to quote at least a certain % for a spread < 5. So therefore lots of offers at $4.90...
     
  7. Here's a screenshot: watch the Ask of Put strike 2:

    VERU_see_Ask_of_Put_strike_2.png
     
  8. Here's another example, now with volume even > 0. See Put strike 2, and its exploding IV :

    WKHS_check_Asks_of_Puts.png
     
  9. cesfx

    cesfx

    That put is in the money, and it has a huge bid 0.43/ask 5.00

    You could never sell it for more than 2$ but you are welcome to buy it.
     
    TrailerParkTed likes this.
  10. The question is about how and why the $5 was accepted into the orderbook.
    Who is allowed to place such a sell order with a price above the Put strike?
    Why does the marketplace accept & tolerate such clearly fraudulent orders?
     
    #10     May 5, 2023