I sold an iron condor yesterday on Lennar (LEN) for a 0.52 credit. However, when I reviewed my order, I noticed that I bought a 48 PUT for much more than the 49 PUT that I sold. In other words, the put vertical that I sold should have been for a small credit and instead it was for a debit that was much larger than the spread itself. Similarly, I ended up selling an expensive call which I'm fine with. Obviously, I would have liked to just sell the call side only which is guaranteed to be profitable no matter what happens to the underlying. My question is, how did this happen? Is this due to a dark pool deal? I usually see less valuable options selling for less than more valuable options...that's the expectation. In any case, I'm still profitable (so far) on this trade, just curious about what happened.
IB sold me put vertical for a large debit that should have been a credit
- Thread starter ET180
- Start date
I sold an iron condor yesterday on Lennar (LEN) for a 0.52 credit. However, when I reviewed my order, I noticed that I bought a 48 PUT for much more than the 49 PUT that I sold. In other words, the put vertical that I sold should have been for a small credit and instead it was for a debit that was much larger than the spread itself. Similarly, I ended up selling an expensive call which I'm fine with. Obviously, I would have liked to just sell the call side only which is guaranteed to be profitable no matter what happens to the underlying. My question is, how did this happen? Is this due to a dark pool deal? I usually see less valuable options selling for less than more valuable options...that's the expectation. In any case, I'm still profitable (so far) on this trade, just curious about what happened.
I've noticed that you see option price prints pretty frequently that don't make sense but are part of a spread that presumably did. For whatever reason they come up with random prints on the underlying components of the spread. As long as you got what you wanted overall it should be all the same to you.
Robert Morse
Sponsor
Since all that matters is the net, not sure how they did that, unless the reports are wrong. The spread right now is around .10/.67 with a midpoint of .38. Non of the option above $2 look real. They all trade well below that.
I agree, I'm fine with the trade overall. I was just curious about how such a deal occurred. I doubt that call that I sold ever hit the order book. It was part of a package deal.
Robert Morse
Sponsor
They still can't trade through the legs to print a spread.
I swear I've seen SPX spread prints that are way out of whack with the market, I'll have to look and see if I can find a specific example. Maybe they were still inside the spread and the spread was just really wide.
So, as others have said the only thing that is important is the total price, don't worry about the individual legs. Here is what happens, The NBBO market on an individual leg may be 2-2.10, but the spread is sent to and exchange such as the BOX that has very wide markets. The BOX market on that option may be .20 -5.00. When the spread fills on that exchange, it only matters what that exchange's prices are. So with 4 very wide markets you might see some crazy prices. These often trade outside the NBBO, as that exchanges spread book is only looking at its own prices.
Sig, the SPX is unique in that they can mark a spread "combo" and use prices that are away from the current market as long as they were there at one time. People often do delta neutral spreads where the buy or sell and option and the do an at the money combo against it so it is neutral. As a concession to the traders so the don't have to "reprice" the combo, the market makers may use the same old prices when the spread trades again. This often gives prices that are out of whack. Also if the markets are wide and a spread trades in the COB, you might see some crazy prices as well.
Sig, the SPX is unique in that they can mark a spread "combo" and use prices that are away from the current market as long as they were there at one time. People often do delta neutral spreads where the buy or sell and option and the do an at the money combo against it so it is neutral. As a concession to the traders so the don't have to "reprice" the combo, the market makers may use the same old prices when the spread trades again. This often gives prices that are out of whack. Also if the markets are wide and a spread trades in the COB, you might see some crazy prices as well.
Apparently they can, as I see it every day. They just don't trade through their own exchanges prices.
That's why I always just sell/buy individual legs to trade a combo. I have never tried buying/selling a combo as a whole. Do you actually get(pay) higher(lower) premium if you sell(buy) a combo as a whole than selling(buying) individual legs in the same combo? Do you actually get better and/or faster execution if you buy/sell a combo as a whole?
Thanks