How to pull the rug on SPX market makers

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OK Day - I would think that you probably have seen responses like this in the 40+ pages - but you initially proposed splitting the B/A and said that the MM would take it out to open up his ripoff prices for larger orders.

My reponse meant that it could have been another trader or arb that picked off the order, not necessarily the MM who felt forced to do it. I doubt that.

Of course - the biggest pick off artists are the MMs so it could have been the MM but not because he felt forced to do it. Only that the order became too favorable to the other side. If the MM is not interested in the 2 - lot he'll likely let it sit all day unless it becomes a steal.
 
Quote from donnap:

OK Day - I would think that you probably have seen responses like this in the 40+ pages - but you initially proposed splitting the B/A and said that the MM would take it out to open up his ripoff prices for larger orders.

My response meant that it could have been another trader or arb that picked off the order, not necessarily the MM who felt forced to do it. I doubt that.

Of course - the biggest pick off artists are the MMs so it could have been the MM but not because he felt forced to do it. Only that the order became too favorable to the other side. If the MM is not interested in the 2 - lot he'll likely let it sit all day unless it becomes a steal.
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When you hit them with 1 or 2 contracts at mid points on abusive prices, the bid and ask narrows, now others start jumping in at those tight spreads. Try it , it works like magic. You get filled quickly and the abusive bid and ask goes back in place as if nothing happened.

There is no need to review lengthy rules and regulations and how the SPX pits operate. This is a strategy not rocket science.
Use it for saving hundreds of dollars and getting in and out of SPX trades quickly.
 
Your point is taken. I'm sure that it will help those unfamiliar with option markets - so thanks for sharing it - and anything that improves liquidity is OK by me.
 
Quote from donnap:

Your point is taken. I'm sure that it will help those unfamiliar with option markets - so thanks for sharing it - and anything that improves liquidity is OK by me.
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My sincere recommendations:

Donot trade SPX If you don't have to. Migrate to other Indexes like NDX, RUT,IWM, SPY.

If you do get caught in a position on SPX and your order is sitting there not getting filled, and you need to get out fast, use the above method, break the wide bid and ask and get the hell out of there and don't go back.
 
Quote from xflat2186:

The market does not have to fill other orders on the price of your order. If you split the bid offer spread and if that series trades on your price then you get your 1 or 2 lot.

If the market going in on a particular a call series you want to trade was 19 bid... offered at 23 and you bid 21 for a 2 lot the mm's are under NO obligation to fill any other orders at a price of 21. The beauty of that is that if another order for greater size comes in and is placed on the box, say an order to pay 20 for a 50 lot, your 21 bid for 2 actually protects that order since now no one else but the pit can see that 50 lot bid and when the futures move down to the appropriate price they will simply sell your 2 lot at 21 and then sell all 50 at 20 immediately so long as the futures fall to a price where they feel there is sufficient edge as to buy the futures and sell that 50 lot at 20. If the futures move up they won’t bother filling your 2 lot nor would they be interested in selling the 50 lot at 20 bucks. But it gets even better, if other orders in nearby strikes come in and they end up buying options from those other orders they always have both your 2 lot and the hidden 50 lot to lean on in order to sell them at a higher volatility level then they just paid in a different strike.

In essence the 1 and 2 lots are helpful in allowing the pit to lean on any other orders that might be out there. The beauty of the “out back” or the large collection of mm’s who only trade 10 up is that they keep the bigger greedy mm’s from leaning too long on those hidden gems like the rare 50 lot that might be put on the box. The 10 lot crew is more willing to trade the 1 and 2 lots for a lesser amount of edge then the big firms.

Of course almost all the of the size order flow, say 25 lots and higher don’t get put on the box and they’re held orders by floor brokers. Also, few of them are retail orders and only retail orders have standing in the pit. So all the off floor orders that come from prop houses and institutions have no standing don’t get put on the box for all to see and contracts can trade all day long on their price and they don’t have to be filled. Then again most of that order flow is shopped to other prop firms and other off floor liquidity providers before those orders ever hit the pit. Then the floor broker simply walks into the pit and since he now has both the buy and sell side of the order he crosses it at a pre agreed upon price and he may dish some off to the mm’s to keep them happy.

It all has a place in the market and unfortunately in a product like the SPX since its aimed at the institutions not the retail guy, that little 1, 2 and 3 lot retail guy gets screwed.
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Just a quick repost so people know what actually happens
 
Quote from day7793:

My sincere recommendations:

Donot trade SPX If you don't have to. Migrate to other Indexes like NDX, RUT,IWM, SPY.

If you do get caught in a position on SPX and your order is sitting there not getting filled, and you need to get out fast, use the above method, break the wide bid and ask and get the hell out of there and don't go back.
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I did notice that the quotes on the NDX refresh faster than the SPX. Is it not the same electronic system?
 
Quote from xflat2186:

Just a quick repost so people know what actually happens
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Thank you again. Not that I forgot, but maybe some others can learn from actually reading it. :D

Ursa..
 
The NDX is listed on 4 exchanges and its access is totally electronic. The answer is yes its a totally different system and its more user friendly for the retail trader. A retail trader will also benefit from the NBBO in the NDX
 
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