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GLOBEX option spreads with IB
- Thread starter TraDaToR
- Start date
Atrocious,
I retried today and IB's submission is even weirder than what we thought. If you enter a 1100-1150-1200 butterfly your order will show in the book but if you choose a more obscure OTM one like a 1060-1080-1100 fly, your order won't appear.
Is it globex limiting spread markets to a range of ATM strikes or is it IB?
Edit: Same for a 1160-1170-1180 fly. No order submission.
You have to remember that your order cannot be easily be submitted especially with odd products.
Think about it as follows:
I have the number 10, what are the 3 numbers that can be used to add to 10?
3+3+4=10
1+2+7=10
2+1+7=10
...
It becomes a permutations game. So now let's say I am IB and need to submit something with 3 legs. What would my order be? Would it hit the bid (get filled), wait for the ask, and then the midpoint? If IB were to hit the bid and get filled it would be holding risk on its books. Thus IB needs to be a probability calculation.
Because IB does not only have to fill one spread, but thousands, it has to play permutations and combinations to fill your spread. Thus while it might not appear on the order book it does not mean it is not available. The order is hidden! It will become visible once it sees a good chance of filling the order.
My suggestion to you is to forget about the order book. Once IB has acknowledge the order (the order turns green) it is in their hands. IB will not shaft you because they are not allowed. There is MIFID that requires brokers to get the prices available.
Christian, an ES butterfly is a market on its own just like ES futures or AAPL stock. There is no legging involved, no need to check what the related markets are implying for the butterfly. CME has created butterfly, calendars, straddle, strangle markets that are independant from their options components for ES.
There is no apparent reason for my orders to appear in the book for one fly and not another...
There is no apparent reason for my orders to appear in the book for one fly and not another...
Ok, fair enough, but then the CME has play permutations combinations... You can't avoid the permutations and combinations game. Hence you can't put it on the order book since you don't know what the pricing will be.
My question is why does your strategy require that the order appear on the orderbook?
My question is why does your strategy require that the order appear on the orderbook?
I looked at their website and could not find the built in butterfly strategy. There were others, but let's ignore that and take things as per you say it is. Namely that they have a magic price for the butterfly. Thus to hedge their position they would have to replicate the strategy, meaning they would have to either find somebody with the exact opposite requirement,or they would have to build the construct themselves from the underlying options market. I am guessing the latter since the former would make for a thin market.
Thus by having to hedge themselves with the underlying they might not be able to give you the price you want since they themselves don't know what the price is. They need to piece the legs together themselves.
A friend of mine who used to be a commodity option market maker always had to hedge the positions. And when there was no pricing they would not offer any prices.
It's up to the MM who post bid/ask to the butterfly market to be in line with the implieds. If he is making an error, somebody will arb and he will lose money. However, since there is just one spread compared to three if you leg in with the components, it is usually a narrower market, more attractive to market takers.
I am no expert but I guess there is no permutation on CME side. You just created 3 different option contracts with your counterpart on one single pricing. It may be seen in the 3 different option OI.
I want to appear in the book to be sure that if I provide liquidity and I'm in front of everybody, I will get the first market order coming. Butterflies must be FIFO based just like ES.
Edit: I watched the price banding pdf I printed and ES straddles, strangles, flies, horizontals and verticals are FIFO based.
Hi Tradator - it is IB limiting strikes due to what I'm guessing is an archaic back end. I know for a fact you can create that 60/70/80 fly on Globex.
Go to CME's site and search "user defined spreads" under Globex functionality - starting in 2009, they switched from defining allowable spreads with limited strikes to full user defined capability.
If you have a Globex terminal (or access as IB does), you can basically create any spread imaginable with up to 40 legs and any permutation or options and futures. The spread order is held by Globex with zero leg risk.