Combines Stock/Option Activity

A

arturo100

Hi. I was trying to understand what was going on this apparently combined option/stock trade I saw last week and I thought that may be some kind soul here could help.

At 11:23 of January 16, 550 Call 165 on STZ expiring on Feb. 22 STZ190222C00165000 were bought at 2.65, a price near the ask (2.75).

Time price volume size bid ask tick_id basis_for_last trade_market_center trade_conditions
.......
3 2019-01-16 10:15:37 2.6 4 17 2.6 2.7 10316944 C 11 20
-> 4 2019-01-16 11:23:00 2.65 550 567 2.4 2.75 21192946 C 9 01 <-
5 2019-01-16 11:29:18 2.62 3 570 2.5 2.7 22077238 C 26 27
............

About one minute later, @ 11:24:01 18150 shares of the underlying were sold @ 159.15, a price lower than the bid (159.42):

time price volume size bid ask tick_id basis_for_last trade_market_center trade_conditions
.........
6397 2019-01-16 11:24:00 159.4799 5 568324 159.42 159.48 1431981896 O 19 87
-> 6398 2019-01-16 11:24:01 159.15 18150 586474 159.42 159.48 808470090 O 8 8905 <-
6399 2019-01-16 11:24:04 159.478 25 586499 159.42 159.48 1446004567 O 19 87
.........

My understanding is the following: since the call was bought and the underlying was sold, the stock trade couldn't be due to the market maker covering himself. So the combined trade was probably done by someone trying to a hedge a short position on the underlying. However, in this case, I don't understand why the two trades come from two different market centers (9 in case of the option and 8 in case of the stock).
Please feel free to comment and to say if my whole reasoning is completely off-base.
Thanks in advance.
Arturo
 
Without knowing the definition of "market center," it would seem that 8 trades equities, and 9 trades options. This would reflect a common bifurcation around the globe.
 
Thank you. This is the "market center"definition i get from the R QuantTools package I am using for parsing times&sales:

8 CHX Chicago Stock Exchange
9 PHLX Philadelphia Stock Exchange
 
fyi;

About 50% of all the option volume comes from a complex market. A decent portion of these trades are stock/option combos. Buy writes, Synthetic Calls, Conversions and what is now becoming more popular are delta neutral type combos. These combos originate on the option exchanges. The equity portion is designated as a "Contingent trade". Usually the time stamps of the option and stock trades (ISE/CBOE) are identical so these trades you mention are likely not part of a true combo (one listed in the complex order book)

Although I have not done any PHLX option/stock combos - this may have been a delta neutral type trade done on the PHLX floor (not the electronic complex order book). Someone buying 1 call option per 33 shares (selling the stock). ie 18150/55000 = .33
 
Last edited:
mskl said:
fyi;

About 50% of all the option volume comes from a complex market. A decent portion of these trades are stock/option combos. Buy writes, Synthetic Calls, Conversions and what is now becoming more popular are delta neutral type combos. These combos originate on the option exchanges. The equity portion is designated as a "Contingent trade". Usually the time stamps of the option and stock trades (ISE/CBOE) are identical so these trades you mention are likely not part of a true combo (one listed in the complex order book)

Although I have not done any PHLX option/stock combos - this may have been a delta neutral type trade done on the PHLX floor (not the electronic complex order book). Someone buying 1 call option per 33 shares (selling the stock). ie 18150/55000 = .33
More...

Thanks for your thoughtful answer, mksl. So, if I read you correctly, this could be considered a short position on the underlying, with some hedging involved.
One last question, if you don't mind. Sometimes, I see, instead, a perfect agreement between the stock/option combo (i.e., buy the call and buy the stock or buy the put and sell the stock, etc.). Can we safely assume in these cases that it is the market marker covering the option transaction?
Thanks again and congrats on your knowledge of this subject.
 
It is not a safe assumption that a market maker is involved. Although if it is a floor type transaction then it likely increases the chances that a MM sold the calls and bought the stock.

my two cents is that you shouldn't care who is doing the trading.
 
A couple of things. The trade partially occurred on the CHX for the stock - the core business there is unbroken crosses tied to stock - legacy business from when it was the Midwest and much of the CBOE tied to stock was done there.
Trades were worse than market so it can't have been a
customer and must be professional.
Assuming there were no other parts - trading or legacy - it's a synthetic put - so as was mention the other side could have been a short put or covered write.
Generally - Generally when you see a stock tied to options trade done PHLX/CHX it's a SIG/Citadel hedge or simply moving the position when it needs to print somewhere.
Between the CHX allowing unbroken crosses and PHLX fee caps, they do a lot of their share this way.
 
ajacobson said:
A couple of things. The trade partially occurred on the CHX for the stock - the core business there is unbroken crosses tied to stock - legacy business from when it was the Midwest and much of the CBOE tied to stock was done there.
Trades were worse than market so it can't have been a
customer and must be professional.
Assuming there were no other parts - trading or legacy - it's a synthetic put - so as was mention the other side could have been a short put or covered write.
Generally - Generally when you see a stock tied to options trade done PHLX/CHX it's a SIG/Citadel hedge or simply moving the position when it needs to print somewhere.
Between the CHX allowing unbroken crosses and PHLX fee caps, they do a lot of their share this way.
More...
Thank you. You guys must have been doing this job for ever to know so many things! It is also nice of you that you share this info with fellow traders. As for myself, I am just trying to measure the market sentiment by looking at this transactions. So I am glad that you confirm that this could be a bearish bet.
 
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