Getting orders filled on spreads

[FSU]

Thanks for the reply, but I think we're talking about two different things.

The more I research this, the more I think we're attempting an advanced strategy that simply isn't going to work on TOS, at least not unless I can code some kind of external management system to float on top of TOS. While the volume of the individual legs is extremely high, the volume of contracts using my synthetic spread is, well, just me.

I'm reaching out to some of the local CBOE guys here in Chicago to ask questions. I appreciate everyone's time and contribution to my question.

There is no NBBO in the SPX. It is a single listed product. When you send a spread order through TOS to the SPX, it will be sent to the exchanges COB (Complex order book). Larger orders in the SPX (non weeklies) may be sent to a brokers par station in the pit first. So for your smaller orders, it doesn't really matter your broker, the fills will all be the same here with all brokers as they will all be sent to the COB.

MM's will look at the order as a spread and determine whether there is enough edge to trade it. You are generally far better off sending an order as a spread rather then legging. I have found the spread markets very tight here. Doesn't matter if there is little or no volume in a leg.

Even if the MM's electronic systems don't think there is enough edge in the spread, it will still "auto trade" against the quoted market. So if the spread can be filled by buying the offer and selling the bid, it will do so. This is different from equity options that are multiply listed.

So the only reason you aren't being filled is you are not giving up enough edge. If the quoted bid and offer will fill your spread, it will fill at that price or almost always better.

 

[mportnoy]

mportnoy-I'm happy to jump on a call one day and better understand the issues you are having. I was an AMEX MM for 25 years. I'm not getting any complaints from my active traders getting fills in SPX or any other active symbol. The detail I would need to figure out why you are, would be too hard to figure out this way. In fact, a live example would be best, which is hard here.

I really appreciate the gesture. In fact, I just sent an email to your company. I think what I'm looking for is something like Trade Technologies Autospreader, except that platform only works on futures. I'm willing to code something myself if needed.

 

[mportnoy]

So the only reason you aren't being filled is you are not giving up enough edge. If the quoted bid and offer will fill your spread, it will fill at that price or almost always better.

Except I've seen prices as much as $1.50 below my limit order, and I still don't get fills. If that's not enough edge for the MM I don't know what would be?

 

[Same Lazy Element]

Except I've seen prices as much as $1.50 below my limit order, and I still don't get fills. If that's not enough edge for the MM I don't know what would be?

Dude, you can call the floor and get a market on the spread. If you quote a tied spread in SPX you gonna get a very tight market unless you are a true baller.

 

[FSU]

Except I've seen prices as much as $1.50 below my limit order, and I still don't get fills. If that's not enough edge for the MM I don't know what would be?

When you say prices 1.50 below your limit order, are you talking about the midpoint of each option and using that as the fair price of the spread? The midpoint is not always a good representative of fair value. Typically most spreads are extremely tight in the SPX. Please give me an example of what spread you are putting in and I will give you an idea of how tight the spread will be.

I was a MM on the floor of the CBOE for 25+ years and currently trade extensively in the SPX, mainly spreads, so I might be able to offer you some insight.

 

[FSU]

Dude, you can call the floor and get a market on the spread. If you quote a tied spread in SPX you gonna get a very tight market unless you are a true baller.

Unless you are trading size, they don't want to hear from you on the floor. You will get generally get a tighter market in the COB as well, especially for a small order.

 

[mportnoy]

When you say prices 1.50 below your limit order, are you talking about the midpoint of each option and using that as the fair price of the spread? The midpoint is not always a good representative of fair value. Typically most spreads are extremely tight in the SPX. Please give me an example of what spread you are putting in and I will give you an idea of how tight the spread will be.

I was a MM on the floor of the CBOE for 25+ years and currently trade extensively in the SPX, mainly spreads, so I might be able to offer you some insight.

I'm doing a synthetic spread; it's a strategy I put together, backtested, and forward tested on paper trade.

Basically I sell to open at a set price below the max value of the spread. I have almost no trouble getting fills when I sell to open but some days are better than others.

As the market fluctuates, so do the individual legs of the spread. When I enter my order, I also set a limit order for buy to close. This is where I often have difficulty getting fills, no matter what the market price.

 

[FSU]

I'm doing a synthetic spread; it's a strategy I put together, backtested, and forward tested on paper trade.

Basically I sell to open at a set price below the max value of the spread. I have almost no trouble getting fills when I sell to open but some days are better than others.

As the market fluctuates, so do the individual legs of the spread. When I enter my order, I also set a limit order for buy to close. This is where I often have difficulty getting fills, no matter what the market price.

Still a bit confused on what type of spread you are doing. "Synthetic Spread" is not a good description. Can you give me an example of a specific spread you are trying to do? Are you buying a vertical call spread, are you buying a time spread, are you trading a combo vs a specific strike. This is what I mean. You don't have to divulge specific strikes, just the general spread.

 

[Same Lazy Element]

Unless you are trading size, they don't want to hear from you on the floor. You will get generally get a tighter market in the COB as well, especially for a small order.

Has not been my experience. I have quoted as small as 10x in stuff like SPX riskies and got back very tight markets. This said, it might be a relationship thing.

Anyway, how would you quote something tied via COB? I guess you can add the combo to the spread legs but then you're forcing them to trade on your delta. It would not be crucial for SPX, but for example, I trade my VIX spreads tied and work out of the delta myself - I find that my model spits out very different deltas from what the MMs have.

PS. I think I should use the COB a bit more, especially considering that I can probably automate the order submission but my experience has been very mixed

 

[PoopyDeek]

Thanks for the reply, but I think we're talking about two different things.

The more I research this, the more I think we're attempting an advanced strategy that simply isn't going to work on TOS, at least not unless I can code some kind of external management system to float on top of TOS. While the volume of the individual legs is extremely high, the volume of contracts using my synthetic spread is, well, just me.

I'm reaching out to some of the local CBOE guys here in Chicago to ask questions. I appreciate everyone's time and contribution to my question.

Trust me there is nothing advanced or exotic about your spread. Nobody can help you without knowing how the trade is structured. The COB can take some crazy numbers of legs/ratios. Nobody wants your IP.