VERU, WKHS are micro penny stocks.
Market markers are very worried about not being able to bring home the bacon.
So they have to widen the bid-offer spread for such micro penny stocks.
A case for SEC: How criminal Market Makers rob the traders
- Thread starter earth_imperator
- Start date
VERU, WKHS are micro penny stocks.
Market markers are very worried about not being able to bring home the bacon.
So they have to widen the bid-offer spread for such micro penny stocks.
Here's a practical example that can be verifed by everybody:
It is the Put option strike=2.00 of ticker=BBIG (Spot=$2.34) for ExpDate=2023-06-30 AsOf=2023-05-26-Fr-141912-EDT (DTE=35):
The premium of a Put can never ever be higher than the strike price, so the OAsk above is definitely wrong.
After doing some maths (applying BSM), one gets Ask=1.1295 as the fair value.
B/c of this fixing, then one of course has to fix (re-calculate) the IV (and MP etc.) as well.
Luckily they can be fixed, as it's some simple/clever maths to apply.
For example the OMP (ie. the Original MidPrice) is 67.50% higher than the MP of the fair values.
Here the original raw data as was delivered via API.
And: besides IV also all the Greeks therein (delta, gamma, theta, vega, rho) are simply useless b/c wrong as well, due to the wrong Bid/Ask. Ie. they too need to be re-calculated...
It is the Put option strike=2.00 of ticker=BBIG (Spot=$2.34) for ExpDate=2023-06-30 AsOf=2023-05-26-Fr-141912-EDT (DTE=35):
Code:
Buggy Originals: OBid=0.16 OAsk=2.13 OIV=539.89 OMP=1.0800 ...
Fixed (Fair Values): Bid=0.1600 Ask=1.1295 IV=312.0080 MP=0.6448 ...The premium of a Put can never ever be higher than the strike price, so the OAsk above is definitely wrong.
After doing some maths (applying BSM), one gets Ask=1.1295 as the fair value.
B/c of this fixing, then one of course has to fix (re-calculate) the IV (and MP etc.) as well.
Luckily they can be fixed, as it's some simple/clever maths to apply.
For example the OMP (ie. the Original MidPrice) is 67.50% higher than the MP of the fair values.
Here the original raw data as was delivered via API.
And: besides IV also all the Greeks therein (delta, gamma, theta, vega, rho) are simply useless b/c wrong as well, due to the wrong Bid/Ask. Ie. they too need to be re-calculated...
Code:
{
"putCall": "PUT",
"symbol": "BBIG_063023P2",
"description": "BBIG Jun 30 2023 2 Put (Weekly)",
"exchangeName": "OPR",
"bid": 0.16,
"ask": 2.13,
"last": 0.27,
"mark": 1.15,
"bidSize": 978,
"askSize": 16,
"bidAskSize": "978X16",
"lastSize": 0,
"highPrice": 0,
"lowPrice": 0,
"openPrice": 0,
"closePrice": 0.24,
"totalVolume": 0,
"tradeDate": null,
"tradeTimeInLong": 1685039924713,
"quoteTimeInLong": 1685125148487,
"netChange": 0.03,
"volatility": 539.895,
"delta": -0.173,
"gamma": 0.064,
"theta": -0.014,
"vega": 0.002,
"rho": -0.002,
"openInterest": 9,
"timeValue": 0.27,
"theoreticalOptionValue": 1.145,
"theoreticalVolatility": 29,
"optionDeliverablesList": null,
"strikePrice": 2,
"expirationDate": 1688155200000,
"daysToExpiration": 35,
"expirationType": "S",
"lastTradingDay": 1688169600000,
"multiplier": 100,
"settlementType": " ",
"deliverableNote": "",
"isIndexOption": null,
"percentChange": 14.84,
"markChange": 0.91,
"markPercentChange": 387.03,
"intrinsicValue": -0.34,
"pennyPilot": true,
"nonStandard": false,
"mini": false,
"inTheMoney": false
}
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The wording "fair value" even after fixing is not appropriate b/c of the huge Bid/Ask spread.
In this case especially the Ask makes up the upper bound (upper limit) when considering also the other factors like DTE etc. Without that, the max upper limit is of course the strike price, ie. $2.
And the fair value then being somewhere in the middle, ie. the MidPrice MP.
In this case especially the Ask makes up the upper bound (upper limit) when considering also the other factors like DTE etc. Without that, the max upper limit is of course the strike price, ie. $2.
And the fair value then being somewhere in the middle, ie. the MidPrice MP.
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the last time I did that it went into infinite loop. Fair value from quotes, then quotes are tightened.
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
FV recalculates. Quotes adjust
You seem not to understand the problem in the first place...
W/o these tests and re-calculations you cannot know whether it makes sense to trade the shaet or not...
Especially not when doing a scoring/ranking, ie. creating a sorted list and processing it...
And "tightening it" means just exactly what I indeed do by these calculations!...
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IMO no need to iterate, just calc the minPremium and maxPremium by making just 2 calls to BSM... and cap Bid and Ask at these min/max limits for determining the fair value, ie. the MidPrice... Of course now one should re-calculate also the IV...
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Fix:
OMP = (0.16 + 2.13) / 2 = 1.1450
Then the above 67.50% changes to this one:
1.1450 / 0.6448 * 100 - 100 = 77.57%
Earth...Are you saying MMs have to tighten option markets? Are you saying they are required by law? Just grabbed this off of Google...CBOE. I see nothing about require...
The Cboe Lead Market Maker (LMM) Program is a rewards-based program that aims to provide a superior trading experience for issuers and investors by incenting Lead Market Makers to demonstrably enhance market quality in the form of tighter markets and deeper liquidity for Cboe-listed ETPs.
The Cboe Lead Market Maker (LMM) Program is a rewards-based program that aims to provide a superior trading experience for issuers and investors by incenting Lead Market Makers to demonstrably enhance market quality in the form of tighter markets and deeper liquidity for Cboe-listed ETPs.
What do you "get" from this?
IMO nothing but the usual hollow marketing bubble speak.
And: read the title of the thread.