Is this options order legal?

[cttfs]

I want to buy 20 contracts of a certain option (spread is .80 x 1.20). I bid 1.00 and was filled on only 10 contracts. I have no interest in this "half position", so I give up and put in an offer to sell my 10 contracts at 1.00. But my sell order sits and doesn't execute, and I am joined by other offers to sell at the same price. So I figure, I'll cancel my offer, and just buy another 10 contracts (from those other offers) and get to my initial intended position of 20 contracts. But as soon as I cancel my offer, the others are cancelled as well. A little frustrating that they are just shadowing my offer - they follow me immediately when I post it and cancel it (that's repeatable).

So would it be legal for me to post my offer on Exchange A, see that someone else posted the same offer on Exchange B, and then put in a bid (DMA) to buy it on Exchange B? That would seem reasonable to me, but does it run afoul of some kind of market rule? I seem to recall trading with oneself is frowned upon, but here I'd be trading with someone else at a different exchange from where my offer is.

 

[beerntrading]

If you're in the US, your broker is prohibited from allowing you to show an offer and bid on the same option contract simultaneously....so moot point really. I lose my place in line a lot because of this stupid rule.

But the behavior is ordinary market maker activity. They'll lift orders when the bid size is reduced without a fill and push it out to the next price down. It's how they widen the spread...and how you can jump the queue and get a good fill.

 

[tommcginnis]

The market behavior you're describing is an everyday ocurrance.
That doesn't make it any more *fun* to deal with, but there it is.

Your solution (and others that no doubt come to mind, right?) has you arbitraging bids and asks across the market: *Caution!* Just as you thought it was 'fair' to post a MID of $1.00, and then try to tailor to what BID or ASK responds, there are others (around the world) looking to do the same thing.

Exchange costs differ, liquidity(s) differ, but everybody is watching. ("Smart Routing")
The time you spend on improving your trades here would likely be better spent elsewhere. That doesn't mean it's not fun! That doesn't mean there's not good market mechanics/insights to be gained there! Just don't kill yourself with it.

I know *personally* that I should always exit a spread *as* a spread. But, like, every day (and to my shame), I find I try to leg out, and end up paying more MOST OF the time.
BUT! It's learning. It's tuition. It's like a video game with a 'mega-tough' setting that you *know* will crush you, but you play anyway, just to see how well you'll do this time. Meh. Cheap entertainment, really.

 

[beerntrading]

The time you spend on improving your trades here would likely be better spent elsewhere. That doesn't mean it's not fun! That doesn't mean there's not good market mechanics/insights to be gained there! Just don't kill yourself with it.

I disagree with this. Any improvement to a trade pays you back on EVERY. SINGLE. FUTURE. TRADE.

That said, I'm happy to have unfilled and partially filled orders all day long...

 

[Robert Morse]

I want to buy 20 contracts of a certain option (spread is .80 x 1.20). I bid 1.00 and was filled on only 10 contracts. I have no interest in this "half position", so I give up and put in an offer to sell my 10 contracts at 1.00. But my sell order sits and doesn't execute, and I am joined by other offers to sell at the same price. So I figure, I'll cancel my offer, and just buy another 10 contracts (from those other offers) and get to my initial intended position of 20 contracts. But as soon as I cancel my offer, the others are cancelled as well. A little frustrating that they are just shadowing my offer - they follow me immediately when I post it and cancel it (that's repeatable).

So would it be legal for me to post my offer on Exchange A, see that someone else posted the same offer on Exchange B, and then put in a bid (DMA) to buy it on Exchange B? That would seem reasonable to me, but does it run afoul of some kind of market rule? I seem to recall trading with oneself is frowned upon, but here I'd be trading with someone else at a different exchange from where my offer is.

That might be considered market manipulation if you offer on one exchange to get someone to match, then take their offer and cancel. Just avoid trading very wide markets.

 

[OptionsOptionsOptions]

I want to buy 20 contracts of a certain option (spread is .80 x 1.20). I bid 1.00 and was filled on only 10 contracts. I have no interest in this "half position", so I give up and put in an offer to sell my 10 contracts at 1.00

• Why not stick with the 10 contracts and cancel the remaining 10?
  
• 10 contracts is better than none if the position goes in your direction.
• 10 contracts is better than 20 if the position goes against you.

 

[cttfs]

That might be considered market manipulation if you offer on one exchange to get someone to match, then take their offer and cancel.

That's exactly what I'm worried about. Even though in my case I'm not looking to artificially manipulate the market and trade in and out. I want to buy and hold it (for months potentially), just at the 1.00 price I know folks are willing to sell it at.

 

[FSU]

If you're in the US, your broker is prohibited from allowing you to show an offer and bid on the same option contract simultaneously....so moot point really. I lose my place in line a lot because of this stupid rule.
.

Actually this is not true. If you have a professional customer designation (and pay higher exchange fees) you can post two sided markets. Also my understanding is if your bid and offer are on two different exchanges, it is allowed. As a practical matter, many brokers will simply not allow you to post a two sided market.

In the OP's example, I would agree with Robert Morse that it might be considered manipulation.

 

[JSOP]

That's exactly what I'm worried about. Even though in my case I'm not looking to artificially manipulate the market and trade in and out. I want to buy and hold it (for months potentially), just at the 1.00 price I know folks are willing to sell it at.

Well don't blame us for "manipulation" when they are the ones who started it and honestly we are actually not looking to "manipulate" the market; we are just trying to get a honest fill with an honest price. Our aim is not to deck it out 1 or 2 cents in options; our aim is to really get in on a trade and then ride it to profit. Options is just a side dish for me tbh. But if they want to engage, then we are all game especially on slow days, you can actually get a better fill when the MM play games on you.

I remember this Friday I was trying to close this option trade, I put in a ask at 0.04 for 20 calls, the bid was 1 below me with 300 contracts sitting there and no takers. My order was just sitting there waiting. And then I saw the options prices with the strikes above mine were going up and going up to higher than my ask but still no takers of my ask and no changes in the bid. It's like the whole market just abandoned my order or something or just pretended that mine didn't exist when mine was clearly the best ask for like 2 hours and nothing happened. So I updated my price to 0.07, in line with the ask of the option with the strike just above mine and guess what? My order was sold at 0.07 two minutes later and as a limit order so I got rebate fees! LOL They could've bought my options for 0.04 and instead they chose to pay 0.07 for it! LOL One of my most satisfying option trade ever!

 

[beerntrading]

Actually this is not true. If you have a professional customer designation (and pay higher exchange fees) you can post two sided markets. Also my understanding is if your bid and offer are on two different exchanges, it is allowed. As a practical matter, many brokers will simply not allow you to post a two sided market.

In the OP's example, I would agree with Robert Morse that it might be considered manipulation.

True, but it goes beyond the scope of the question. No one who is making both sides of the market would be asking this question, not because they know the answer, just know enough not to document it like this.

Also, I though it was in any exchange, not just on the same...pretty sure I tried this obvious workaround.