This is purely risk / margin management. Watch deep OTM strikes in ES trade back and forth all day for nickels. Nothing to read-into.
I don't necessarily agree with this. I this isn't simply out of the money strikes trading nickels. What is different here is how extremely out of the money this trade took place. The strike here was 29% down in 1 day. Also trading were other far out of the money puts at even higher levels. This is what is so unique. There is usually some type of story here in unique situations. One purpose of my post was to ask if someone would have any risk in selling these considering circuit breakers halt trading down 20% and these were far beyond that level.
I promise you there's not much here. I was an index MM for almost two decades. The way the brokers handling this order tend to work- they post a bid electronically (or in the crowd) and solicit counters on strike. They are looking to spend the least amount of premium to cover some absurd risk that will never come into play (but which they must cover, nonetheless). It's not uncommon to see the bid posted, and the quantity roll down to smaller strikes until they get a fill for their size. The size is their need- not a strike level. They could care less if odd lots of higher strikes are trading at their price (usually). What's interesting, given my experience, is that the size *wasn't matched until* the 3100 strike. That is going to tell you a little something about the dealer community's current gap / crash risk. And I have noticed accelerant flows bidding crash puts in tenors immediately following Sep29th- so there may be a little strain on downside vols if we continue lower through end of month. Cheers Oh yeah- and no, you don't really have much risk in selling these- beyond when you are told you can't continue to sell them. They are off the map- like you said- way beyond the circuit breakers. Maybe once in a blue moon like COVID or Volmageddon you have a temporary spike and some forced buying-to-cover, but the risk of trading through is virtually nonexistent.