Do we have 'dark pool' in option trading?

B

balance

It's stated that open interest is updated at end of day after OCC clears all option traded and done with the match up of open and close orders. and I am fully aware of the relationship (or lack of) between volume and open interest.

Still there're many cases where daily volume and open interest just don't make sense.

Let's look at one example:

RAX dec 50call,

date, open interest, volume

7/11, 2852, 2055
7/12, 4721, 3 <--- make perfect sense, assuming 2055 contracts are mostly 'open' and not matched by 'close'.

However,

7/13, 2724, 10 <--- Now this really needs some explanation!

How can the OI be reduced from 4721 to 2724 by only of 3 contracted on 7/12?

Recall the stock price and dec 50 C on 7/12 is $42.x, and $2.x respectively so there's NO WAY the holder of the > 2000 call contracts will exercise the OTM options.

I've seen this type of behavior many times and asked thinkorswim (supposedly the option trading expert) but never got any explanation.

So is the OI updated exactly at end of each day? or there're potential dark pool in option trading where the volume is not reflected?
 
2nd case,

RHT sep 60c, date, OI, volume

7/12, 5690, 3202
7/13, 7668,17
7/16, 4681,13 (monday, 3k reduction of volume 17?)
7/17, 7642/15 (??)
 
You can get changes in OI from a few issues outside trading. If I'm a fund and I do an options trade in either an average price account or a master account and I tag the order as OPEN CUSTOMER the OI goes up. Then the next day or a few days later, the trade is moved to another account where that trade is an offset, it then reduces OI. Many broker neutral platforms don't or can't automate if your trade is to Open or Close. The default would be OPEN. Then it has to be corrected when the trades are not paired off.

There are dark pools for options, but the OCC requires those trades be printed on an options exchange. Knight and Instinet are two names that have them.
 
Quote from FrankSlaughtery:

IIRC by definition there is no dark pool for options b/c unlike stocks you can't cross and trade and bring it back on the exchange.
More...

They trade pending cross. Many exchanges make it very easy to cross those transactions as long as they are not outside the NBBO. The crosses are automated. Sometimes they lose a percentage of the trade, often very small if on the Bid or Offer. When inside, it just trades.
 
  • Like
Reactions: You
Thanks for the replies. The facts are open interest even though updated daily, can have 'update' later so when looking at the volume and OI changes, use your own judgement.
 
Be cautious about the quality (LOL even me I guess) of some of the option posters here.

I wish I knew a superb options trader website to ask such interesting questions. I like to think about these to exercise my thinking from time to time.

So I have a potential theory for you that contains facts in other areas of trading and that I have personally seen happen some times.

On the toronto stock exchange, I had a day order sell some years ago for a stock. I happened to be watching it at market close that day and had written down the volume and price range. I didn't close the order.

Next morning I was surprised to see the stock gone in my account but the numbers had not changed. To my surprise, they had paid me 5 cents above the price ever traded (during market hours) that day. I believe that TSX rules say that any after hours trade must occur at bid and ask prices. (This one did not).

After lots of research of this and discussion I learned some things, not all of which I will share.

The shown volume is not accurate at any given time because the exchange may allow up to a 15 minute (if I recall) delay in reporting. At the end of the day it is supposed to be accurate I was told.

Why would someone pay me above the official price and not update the numbers? (My (not given fully) answer actual made some sense and became an interesting and fantastic signal albeit nearly impossible to take advantage of.)

Because some trades occur in the 10 minute settlement window after hours and are not reflected in the tool counts and because of how the data arrives at your chosen tool. Bottom line: Those that create the tool and sell the data are not as particular as you are.

So, perhaps the anomaly you cite is caused by a large trade after hours or by the market maker on close that doesn't make it into the tool numbers. Have you verified the numbers on that day with the exchange time and sales records?
 
You must log in or register to reply here.
Back
Top