Buying / Selling at $0.01 when min Bid (for display to market) is $0.05

D

d0rian

Most options I trade have a minimum Bid of $.05, even when the option is near-worthless (e.g. far OTM near expiration). However, as I understand it, that $0.05 "minimum" is actually just the lowest value that will display to the market.

Consider a near-worthless option contract with a current spread of: No bid : 10 x $0.05

Let's say I want to close a 10-contract short position for $0.01...IB's TWS does indeed let me submit a Buy order for 10 x $0.01...except that it doesn't display as a live Bid to the market (price continues to display as No bid : 10x$0.05). If I mouse over the green "status" bar, it shows "Active on NASDAQOM ($0.01)", indicating that my order is indeed live...except that it's essentially invisible. Every once in a while, my "invisible" $0.01 orders will get hit...(I assumed by traders putting in a Market Sell order, perhaps accidentally.)

I want to better understand these "invisible" $0.01 orders:
  • Are they truly invisible to ALL market participants (other than me)? If so, that's frustrating because there's possibly sellers who would be willing to sell at sub $0.05 increments, except they can't see there's a willing buyer.
  • Is there anything I can do to give these orders more visibility, in the hopes of attracting would-be sellers?
  • Does exchange-routing matter here at all? I'm just submitting them as SMART-routed, but would sending them to a specific exchange be more likely to result in execution?
 
some stock options quote in increments of 5 cents. others in 10. and other by the penny. why such a differences exists I have no idea. It makes no difference where you get filled though. If the ask shows 10 cents and the bid shows zero, you can get filled anywhere between depending on the mathematical value of the option rounded to the nearest penny.
 
Maybe I wasn't clear in my OP, but I was specifically asking about the visibility of my $0.01 Bids...and whether it's true that I am literally the only person who is able to see them, since the min Bid for display to the market is $0.05. I'm not quite sure what you meant by your reply re: it "making no difference" where you get filled...I was pointing out that my $0.01 Bids not being displayed to anyone else acts as a significant deterrent to trading, since other market participants have no idea that there's a willing Buyer at a sub-$0.05 level...

As best I can tell there's no way for me to make my sub-$0.05 visible to anyone else...is that correct? I'm essentially looking to say to the broader market of would-be traders: "Hey, look down here, I'm willing to buy at $0.01 or $0.02!" But there's no way for them to know that unless they submit a Market Sell order (which would presumably hit my $0.01 Bid), or whether they just so happen to put in a Limit Sell at $0.01.
 
When I was a MM pre-2011, we had what we called a cabinet bid/offer to close only. Any customer that was closing, could submit an order to buy/sell at $0.01. As a MM, I could buy/sell at $0.01 to open or close, but could not bid or offer at $0.01 to open. Not sure if it is the same today. Those orders were never shown in options that are not part of the penny pilot program.
 
Robert Morse said:
When I was a MM pre-2011, we had what we called a cabinet bid/offer to close only. Any customer that was closing, could submit an order to buy/sell at $0.01. As a MM, I could buy/sell at $0.01 to open or close, but could not bid or offer at $0.01 to open. Not sure if it is the same today. Those orders were never shown in options that are not part of the penny pilot program.
More...

That was the case at the CBOE as well. Not sure how it works today. Only the MM's could see these bids.
 
It depends on the increment of the underlying stock and the trading platform. The etf XLP for example shows everything down to the penny. others do not but the offers exist anyway.
 
Robert Morse said:
When I was a MM pre-2011, we had what we called a cabinet bid/offer to close only. Any customer that was closing, could submit an order to buy/sell at $0.01. As a MM, I could buy/sell at $0.01 to open or close, but could not bid or offer at $0.01 to open. Not sure if it is the same today. Those orders were never shown in options that are not part of the penny pilot program.
More...

Thanks for reply. Though I'm pretty sure that IB allows me to bid/offer $0.01 to either open or close a position, so submitting my orders isn't really the problem...I just can't find any way to get them to actually display to the rest of the market. Meaning they have no idea there's a live Bid they could hit. (Any most of these $0.01 and $0.02 Bids would essentially be free money for them, as I'm buying-to-close largely worthless positions -- instead of just waiting a week or two for them to expire -- in order to release margin in my account).
 
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