idiotic question about options MM

Quote from rufus_4000:

Why is this surprising? Almost all option MMs trade based on theoretical prices, once your ask is below their ask, the automated MM program determines whether the spread still need to be maintained, if not, then it will cancel its ask (not need to make the market), based on the fair-value algorithm, its bid is farther from "fair-market" than your ask, so the MM edge is still maintained. Once you cancel your ask, their MM determines the need to create a spread, so the new ask get placed.

As most of the MMs have switched to automated MM algorithms, it is pretty impossible to "sucker" a MM into a situation where their order is "stuck", the normal turnaround time for the MM programs is around 20 ms (tops), especially with CBOE's RMMs, PCX Plus, etc.
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I didn't think it was surprising, just interesting. I agree, I'm very close to the CBOE and on very fast lines, yet I can't come anywhere near getting it. I assume that doing it from another account would be illegal, no?

- The New Guy
 
Quote from thenewguy:

Thank you, but that's not what I'm talking about. I guess the title of this thread is misleading... I'm not new to trading, or trading options and I know how level 2 screens work and all that.

What I was refering to is the fact that the 6.00 ask dissappears out of the depth, not that it's there and mine is ahead of it. I mean, as soon as I enter my order, the MM cancels his, and as soon as I cancel mine, the MM re-enters his. I was wondering if this is something they do manually, or if it's a program. I'm trying to figure out how to get better prices on options with large spreads, and I was noticing that sometimes you can "drag" these programs down (by placing really low asks for example, and hoping they don't get filled) to a reasonable price, but I can't execute fast enough to hit that ask before it returns back to the normal ask after I cancel my order.

Man, that reads far more confusing than it should be....

- The New Guy
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How do you know 6.00 ask "disappears"? You just have a better ask for that particular exchange. Anything is more expensive is just not visible to you. That would be my guess based on what you've said so far... And 6.00 "appears" again after you cancel your order, since it becomes the lowest once again... Now, please tell us what type of screen exactly you're looking at. I have to assume "Level 2 for options/market depth" on a retail account... This would confirm my explanation. Thanks
 
Quote from hedgeyourbets:

How do you know 6.00 ask "disappears"? You just have a better ask for that particular exchange. Anything is more expensive is just not visible to you. That would be my guess based on what you've said so far... And 6.00 "appears" again after you cancel your order, since it becomes the lowest once again... Now, please tell us what type of screen exactly you're looking at. I have to assume "Level 2 for options/market depth" on a retail account... This would confirm my explanation. Thanks
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It definately dissappears (well, sometimes it does). On a level 2 screen you can see the depth for at least a dollar most of the time. Sometimes they leave it at the same price, and sometimes (If I offer more than .1 better than theirs) they move their order up to just behind mine. Anyway, ANY order that is out there, I'll be able to see. If I don't see it, it's not an active order.

- The New Guy
 
Quote from thenewguy:

Here's what my level 2 screen looks like....


- The New Guy
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That screen of yours shows only the highest and lowest per each exchange. Where did you get the idea that you will be able to see all of the "active orders"?
 
Quote from hedgeyourbets:

That screen of yours shows only the highest and lowest per each exchange. Where did you get the idea that you will be able to see all of the "active orders"?
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Dang yo, I didn't know that. I assumed it was the same as it is for equities...

Thanks!

- The New Guy
 
Quote from thenewguy:

Dang yo, I didn't know that. I assumed it was the same as it is for equities...

Thanks!

- The New Guy
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Actually, it's pretty much the same for equities. You just see offers/asks from each MM/IB instead of a different exchange...
If you look at ask or offer list for a particular stock, you will see a single MM listed only once...
 
Quote from hedgeyourbets:

Actually, it's pretty much the same for equities. You just see offers/asks from each MM/IB instead of a different exchange...
If you look at ask or offer list for a particular stock, you will see a single MM listed only once...
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Very interesting... I had assumed that PSE, CBO, ASE and so on were acting similarly to ARCA, Instinet et al. Now that I think about it, what you're saying makes perfect sense. Now I gotta figure out how this impacts me...

Thanks,

- The New Guy
 
another thing to note is that wherever your order is routed, if it is an exchange, the market makers will be obligated to meet a fill at that price for a minimum number of contracts. so if you specify say the CBOE and place an offer to sell one contract at 5.90. then an order to buy comes in for ten contracts the MMs will be obliged to fill the ten at that price.
 
Quote from thenewguy:
I've tried suckering them into putting asks out at my price, then quickly cancelling my ask and bidding at the same price but I can't do it fast enough to hit it before they revert back to the first ask price (MM alone).

- The New Guy [/B]
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I don't mean to be a wet blanket...:D ...but the practice you describe is illegal and, if you somehow managed to get executed on your buy, you and/or your executing broker would get fined by the exchange and probably get your trade busted.
 
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