I'd just place the limit order w/ your broker, and if there's a market for it at your price, then it will get filled (maybe just partially). Sometimes the order languishes for a long time, in which case you need to adjust your price accordingly.
How large lots of options get transacted?
- Thread starter poohbear
- Start date
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Looking at your quote,pbear, ''obviously'' less than 10 on ask;
obviously, for some one interested in 5k & obviously you are,
so find something liquid like QQQQ ,DIA ,SPY.MSFT,IBM GE.underlying stock /options
And when options are worth buying or selling;
lets use buying for example ,some times you can buy all you want on bid.Some times you can split bid ask/limit order.
Sometimes you cant;
qqqq bounces around enough,DONT be in a big hurray to cancel day order .And if you are reading like me , ''Way of the Turtle'' book by Curtis Faith, he also likes liquid markets.
Some: years ago option market makers were sucessfuly sued for not honoring quotes;
so in qqqq for example the bid size you see is the bid you get cool:
Quotes are honored, if all one sees persistantly is 10 contracts on bid/ask, keep looking ,thats not liquid.
What do you do if want to buy, say 5000 contracts as in his example, but the stock and options are illiquid, is it best to just put in a bid and wait for it to get filled, assuming this is something that you just must buy?
The big wall street firms, and other boutique firms, have sales trading desks, where they shop around big orders from hedge funds and other big traders. They will call their customers up and say for instance I have a guy who is .50 cent bid on 5,000 XYZ apr 20 puts, do you have any interest? This goes on all day. When they can match the buyer and seller they will cross the trade on one of the exchanges. They may or may not let the market makers participate.
If you work at the trading desk of a IB and if the ask price of an option is reasonably low you can always sell it yourself, right? Option is different from stock in the sense that stock's supply is limited and to fill the order of 100M shares you have to find the shares from other people, but if someone wants to buy 1M contracts of call, if you think the bid price is very low according to your model you can always write it yourself, as long as you find a way to arbitrage. Please tell me if this is true?
For most purposes, that's probably accurate...
Remember you also have to get out of the trade later. As the others have said, you really want the liquidity. After you've had your chain yanked enough times, you quickly realize that the issues w/ low liquidity stocks are not worth the aggravation... (& even many decent vol stocks have low liquidity options)
On the original question, why would any person "have to" have a 5000 contract position in a lower vol stock???
If you want to trade a large option order in a liquid underlying then there is no problem doing 5000 or 50k contracts. Speaking as one who has been on both sides, it is rather simple to get these orders done. The trader calls his retail broker and the broker contacts the option pit and gets you a quote. By the way, I judge retail brokers on their ability to get good quotes from the floor. The floor will usually give you something wide and you have to negotiate with them to get a reasonable price. Market makers are ruthless and will take advantage of you if they can, you just have to know what you are doing and you can get a somewhat reasonable price.
If you wish to do a large order in an illiquid stock, you can get it done but it can be costly and take time. It depends on the stock, how much delta the trade has, and the current positions of the market makers. When you go to get out they will know who you are and be waiting for you, so you have to be careful.
If you wish to do a large order in an illiquid stock, you can get it done but it can be costly and take time. It depends on the stock, how much delta the trade has, and the current positions of the market makers. When you go to get out they will know who you are and be waiting for you, so you have to be careful.