Large(ish) Estoxx flow today...

Quote from Bben1006:

Well--let me help you a bit.

1) Do you think this was an opening trade, or a closing one?

As was already pointed out to you, if this spread had been shopped off the floor first, then the trade - for the identical debit - could have been traded at the mid on one side and the bid on the other. The fact that it actually traded at the ask and mid is insignificant.

Thus, to reply to your question, there is no way to determine if it is an opening trade or not - despite your willingness to be helpful.

Please keep something else in mind. When I was on the floor - and I see no reason why it would be any different today in this respect - and we traded a spread with a broker, we named the prices. If the credit was equal to the customer's bid, there was no problem. There were many times (and reasons) why we wanted to use the highest (or lowest) possible prices when printing the trade.

That is one reason why there is less useful information available than you are suggesting.


2) Was it directional or not?

The trade was directional, but unless you know the hedge, if any, you don't know if the 'play' was directional.

3) Was it placed for credit or for debit?

Asking this question was not a good idea. A put debit spread is the same as the corresponding call credit spread, so the customer could have chosen a debit or credit spread and still own the equivalent position. If the customer can choose either, and the trades are essentially the same, how can it possibly make a difference as to whether it's a debit or credit?

I'm very disappointed that you believe it makes a difference.


4) Can you infer what direction the placed trade was leaning? (bullish or bearish in its disposition, though I am not asking about trader�s intent)?

It's far from delta neutral, so the answer is 'yes.'

5) Under what circumstance a trader (such as yourself, say) would put on such an exact trade (you may re-scale delta if desire)?

None.

But if I were forced to do so, i would find a hedge that flattened out my Greeks as much as possible.

6) What has to happen (between now and the expiry) for this trade to be profitable? (you may speculate on trader�s intent as you wish)

Are you testing to see if we know whether XLF is the bullish or bearish index? that's a bit childish. the truth is that I am responding to your questions without knowing what the trade is. It was in XLF, but I have no idea whether the trade was using calls or puts or whether it was a debit or credit. I did not look at the trade because your questions can be answered without knowing any details.

[7) If your contention of a pre-arranged speared price is correct�what is the perceived odds the trader has for success�at least with the given 2011�time horizon?

Unknown. When shopped off the floor, the other side of the trade is not an ignorant individual investor who is taking a stab at a trade. the 'other side' is just as sophisticated as the originator of the trade and already has the planned trades to hedge the position ready to enter.

The buyer and seller each perceive an edge to the trade. Each thinks he is making a trade with a positive expectancy. That's why trades are made. I have no idea what the probability is the the originator will have a profit. And neither do you.


8) For the given information�what is the volatility implied for each of the strike (by the trading prices) and what is the �speared IV�? (you will be also able to check if the given IV figures are meaningless or not)

I know how to calculate the IV of an option. I can use a calculator, so I decline this specific challenge.

But remember, the prices chosen for the trade may be arbitrary. And that significantly changes the IV of each leg. For you to fail to recognize that IV in this case is immaterial is also disappointing, since you are very condescending with this post. But that's ok. I can take it.

You see Xflat, if you really want to, you can definitely say quite a bit, though I was hoping I�ll hear some response from Mark. In any case, would you like to try again?

Try again. He gave an excellent reply the first time. And I agree <b>you</b> can say quite a bit. But, as I hope I demonstrated with my replies, pretty much anything <b>you</b> try to say about the given trade would be an uninformed opinion, filled with misleading and information that was no better than guesswork.

BBen
More...

Thanks for all that help.

Mark
 
Mark,
I am disappointed with your response. I gave you the details of a particular trade in my initial post—then you gave me a long-winded reply, but without looking at the actual details I provided there.

Here is some data of a particular trade I pulled from trade-alert.com. You might want to also know that the OI for the14 strike was 7621 and for the 10 strike was 17,829. Also, let say that over 90% of the buy leg was executed at the ask and over 90% of the sell leg was executed at the bid. The trade was executed as a one-block speared at 10:07am.

Quantity Symbol Expiry Strike Type Price Side Exch. Time Volume Spread Ivol Spot Change Close Link
18500 XLF Jan11 14 Puts $2.47 ASKSIDE 10:07:08 18500 SPD 39.12% 14.10 -0.23 $2.41 detail
18500 XLF Jan11 10 Puts $0.84 MIDMKT 10:07:08 18500 SPD 42.21% 14.10 -0.23 $0.83 detail

If you just have paid attention, read through the given information you would have realized that actually, there is much that can be said. That was the my reason for listing all these question—to ‘force’ the reader (xfalt or you) to go, step by step through these questions and summarize this way your more educated ‘findings’ :

Well--let me help you a bit.

1) Do you think this was an opening trade, or a closing one?
[MARK] Thus, to reply to your question, there is no way to determine if it is an opening trade or not - despite your willingness to be helpful.
[BBen] Look at the disclosed open interest reported on that day—can you now determine if it is an opening trade or not?

2) Was it directional or not?
[MARK] The trade was directional, but unless you know the hedge, if any, you don't know if the 'play' was directional.
[BBen] I did not ask about the trader’s intent

3) Was it placed for credit or for debit?
[MARK] Asking this question was not a good idea. A put debit spread is the same as the corresponding call credit spread, so the customer could have chosen a debit or credit spread and still own the equivalent position. If the customer can choose either, and the trades are essentially the same, how can it possibly make a difference as to whether it's a debit or credit? I'm very disappointed that you believe it makes a difference.
[BBen] Now, can you tell from the given info the puts were used (and oh, I never said there is a difference).

4) Can you infer what direction the placed trade was leaning? (bullish or bearish in its disposition, though I am not asking about trader�s intent)?
[MARK] It's far from delta neutral, so the answer is 'yes.'
[Bben], if so, then which?

5) Under what circumstance a trader (such as yourself, say) would put on such an exact trade (you may re-scale delta if desire)?
[MARK]None. But if I were forced to do so, i would find a hedge that flattened out my Greeks as much as possible.
[BBen] Yes Mark, know you seldom take directional bets—but can’t you even open your own book to find those circumstances that would warrant the consideration of such a directional bet (without really speculating on the hedge)?

6) What has to happen (between now and the expiry) for this trade to be profitable? (you may speculate on trader�s intent as you wish)
[MARK] Are you testing to see if we know whether XLF is the bullish or bearish index? that's a bit childish. the truth is that I am responding to your questions without knowing what the trade is. It was in XLF, but I have no idea whether the trade was using calls or puts or whether it was a debit or credit. I did not look at the trade because your questions can be answered without knowing any details.
[BBen] Perhaps you should have looked as the given trade information prior to answering my questions!

7) If your contention of a pre-arranged speared price is correct�what is the perceived odds the trader has for success�at least with the given 2011�time horizon?
[MARK] Unknown. When shopped off the floor, the other side of the trade is not an ignorant individual investor who is taking a stab at a trade. the 'other side' is just as sophisticated as the originator of the trade and already has the planned trades to hedge the position ready to enter.
The buyer and seller each perceive an edge to the trade. Each thinks he is making a trade with a positive expectancy. That's why trades are made. I have no idea what the probability is the the originator will have a profit. And neither do you.
[BBen] I only asked you about the perceived odds for success the trader has (not the MM) –and you definitely know now how much she paid for this 4 points spread.

8) For the given information�what is the volatility implied for each of the strike (by the trading prices) and what is the �speared IV�? (you will be also able to check if the given IV figures are meaningless or not)
[MARK] I know how to calculate the IV of an option. I can use a calculator, so I decline this specific challenge. But remember, the prices chosen for the trade may be arbitrary. And that significantly changes the IV of each leg. For you to fail to recognize that IV in this case is immaterial is also disappointing, since you are very condescending with this post. But that's ok. I can take it.
[BBen] Yes, I know you know—but this was primarily offered to xfalt per his comment on the IV (and again—just using the given trade information).

So Mark—would you like to try again, but now, going through the actual trade information I provide, prior to professing your (uninformed) opinion?
Please remember, the entire purpose of this exercise was to point out that some type of information could, under some circumstances (surely not all) still be useful.
And as for me being condescending – I apologize—I meant only to illustrate to you how sometime you yourself come through (and most of the time needlessly so).
BBen
 
Quote from Bben1006:

I did not mean to submit this yet. Have screwed up the bold. Will work on it.

Mark
If you just have paid attention, read through the given information you would have realized that actually, there is much that can be said.....

Why in the world would I want to waste my time doing that?

Also, now that I have tried,I cannot interpret the data. A quick look shows me too many numbers and I don't know what they mean. I see a put trade. Maybe I should, but I cannot quickly decipher them, and so far, you have given me no reason to do so. Why I should allow you to give me a 'test.' The fact that I am taking time to respond to you - is silliness, all by itself. . You and I are on different planets, speak a different language. You see things that are not there and want me to tell you that they are there. No can do.



Well--let me help you a bit.

You need some work on your English also. 'Help' means providing assistance - as defined by the person receiving that help. You are not helpful.

1) Do you think this was an opening trade, or a closing one?
[MARK] Thus, to reply to your question, there is no way to determine if it is an opening trade or not - despite your willingness to be helpful.
[BBen] Look at the disclosed open interest reported on that day—can you now determine if it is an opening trade or not?

No. OI means nothing. Have you never seen a contract with an OI of 100 trade 5,000 contracts the next day? It's a common occurrence.


2) Was it directional or not?
[MARK] The trade was directional, but unless you know the hedge, if any, you don't know if the 'play' was directional.
[BBen] I did not ask about the trader’s intent

Then I answered. Yes it's directional. What's the big deal?

3) Was it placed for credit or for debit?
[MARK] Asking this question was not a good idea. A put debit spread is the same as the corresponding call credit spread, so the customer could have chosen a debit or credit spread and still own the equivalent position. If the customer can choose either, and the trades are essentially the same, how can it possibly make a difference as to whether it's a debit or credit? I'm very disappointed that you believe it makes a difference.
[BBen] Now, can you tell from the given info the puts were used (and oh, I never said there is a difference).

My comment stands. You cannot determine anything meaningful from the fact that it was a debit or credit spread. Nothing.

I'm sure you believe it's a debit spread because the prices used were ask and mid;

4) Can you infer what direction the placed trade was leaning? (bullish or bearish in its disposition, though I am not asking about trader�s intent)?
[MARK] It's far from delta neutral, so the answer is 'yes.'
[Bben], if so, then which?

I don't understand why you are asking. But, I'll tell you this. I have never traded XLF, have no interest in XLF and am not going to look it up. I believe it is one of the triple weighted financials, but have no idea if it's the bullish index or the bearish index. Not knowing that, I cannot know whether it's bullish or bearish.

And your question is ambiguous: If this is the bearish ETF, you can claim the trade to be bearish on XLF but bullish on the market.

Ambiguous questions should be avoided.

But, if XLF is the bullish ETF, then the question is not ambiguous.



5) Under what circumstance a trader (such as yourself, say) would put on such an exact trade (you may re-scale delta if desire)?
[MARK]None. But if I were forced to do so, i would find a hedge that flattened out my Greeks as much as possible.
[BBen] Yes Mark, know you seldom take directional bets—but can’t you even open your own book to find those circumstances that would warrant the consideration of such a directional bet (without really speculating on the hedge)?

No. there is nothing important in my book about taking a directional play.

I've taken my share of them and lose too frequently. Directional plays are not for me.

6) What has to happen (between now and the expiry) for this trade to be profitable? (you may speculate on trader�s intent as you wish)
[MARK] Are you testing to see if we know whether XLF is the bullish or bearish index? that's a bit childish. the truth is that I am responding to your questions without knowing what the trade is. It was in XLF, but I have no idea whether the trade was using calls or puts or whether it was a debit or credit. I did not look at the trade because your questions can be answered without knowing any details.
[BBen] Perhaps you should have looked as the given trade information prior to answering my questions!

Why? I looked at it now and cannot decipher what the trade is. It appears to be a put spread trading at 1.63. So what?

7) If your contention of a pre-arranged speared price is correct�what is the perceived odds the trader has for success�at least with the given 2011�time horizon?
[MARK] Unknown. When shopped off the floor, the other side of the trade is not an ignorant individual investor who is taking a stab at a trade. the 'other side' is just as sophisticated as the originator of the trade and already has the planned trades to hedge the position ready to enter.
The buyer and seller each perceive an edge to the trade. Each thinks he is making a trade with a positive expectancy. That's why trades are made. I have no idea what the probability is the the originator will have a profit. And neither do you.
[BBen] I only asked you about the perceived odds for success the trader has (not the MM) –and you definitely know now how much she paid for this 4 points spread.

And what does that have to do with the probability of a profit? the delta gives me an idea of the probability of finishing ITM, but the price? What does that give you?

8) For the given information�what is the volatility implied for each of the strike (by the trading prices) and what is the �speared IV�? (you will be also able to check if the given IV figures are meaningless or not)
[MARK] I know how to calculate the IV of an option. I can use a calculator, so I decline this specific challenge. But remember, the prices chosen for the trade may be arbitrary. And that significantly changes the IV of each leg. For you to fail to recognize that IV in this case is immaterial is also disappointing, since you are very condescending with this post. But that's ok. I can take it.
[BBen] Yes, I know you know—but this was primarily offered to xfalt per his comment on the IV (and again—just using the given trade information).

XFlat knows how to calc IV.

But the point of this specific trade and your specific question is that there is no REAL IV because there is no way to know if the options traded at their 'natural prices' or were chosen at random to fill the spread. Without knowing the true option price, there can be no IV measured. Do you really disagree with that?

So Mark—would you like to try again, but now, going through the actual trade information I provide, prior to professing your (uninformed) opinion?
Please remember, the entire purpose of this exercise was to point out that some type of information could, under some circumstances (surely not all) still be useful.

I would absolutely NOT like to try again. I'm sorry I tried the first time, but...

Ok you have me. Let me rephrase. Most of the time the information is worse than worthless (sorry XFlat, using that phrase just to explain) because some can gather erroneous information and lose money. Yes, it's true that is is NOT ALWAYS that worthless. Sometimes is just worthless, not worse, and sometimes the information gathered will be useful. But I maintain that you can never know into which category the information falls, but the odds are that it is bad information and using it is likely to have a negative impact.

And as for me being condescending – I apologize—I meant only to illustrate to you how sometime you yourself come through (and most of the time needlessly so).

No argument. I am overly harsh and impatient. But I strive for instruction.

BBen [/B]
More...

Mark
 
Quote from dagnyt:
No argument. I am overly harsh and impatient. But I strive for instruction.
Mark
More...
Well mark, I meant to be instructive to you (please see my initial post) and I am pleased you were receptive.

However, I was puzzled by some of your 'so-called' answers above which suggested a major gap in your understanding of basic notions relating expectancy, odds/probabilities and the pricing of options—after all, you do represent yourself on this board as an authority and as an educator—so please take a moment to clarify these basics concepts for yourself. Similarly, I hope you will review your comment concerning OI and the block –size of the option being traded.

Take care,

BBen
 
Sorry Ben but your reply to your own question is so subjective like the data and the question itself it is of no particular value. That combined with your attitude, although it may make for some laughs for us, does not change the fact that simple statement of price and volume in options trades does not give anyone any particular useful info.
 
Quote from Bben1006:

Well mark, I meant to be instructive to you and I am pleased you were receptive.
I was not receptive at all

... you do represent yourself on this board as an authority and as an educator...

I hope you will review your comment concerning OI and the block –size of the option being traded.

Take care,

BBen
More...

18500 XLF Jan11 14 Puts $2.47 ASKSIDE 10:07:08 18500 SPD 39.12% 14.10 -0.23 $2.41 detail
18500 XLF Jan11 10 Puts $0.84 MIDMKT 10:07:08 18500 SPD 42.21% 14.10 -0.23 $0.83 detail

I don't want instructions from you. Truly, you may think you were being helpful, but I found our correspondence to be distasteful.


I have NO IDEA why you think the data you supplied provides the information you claim.

Where is there any mention of OI?
I cannot find any.


I represent myself as an experienced trader with expertise in the ability to uncomplicate options. I explain the basic concepts and strategies so that beginners can readily understand how to use options successfully.

I take the time to respond to very basic questions. I don't talk down to the novices. I am patient with them.

I am very good at what I do.

I do not claim the ability to teach graduate level courses in option theory.

Mark
 
Quote from dagnyt:

I have NO IDEA why you think the data you supplied provides the information you claim.

Where is there any mention of OI?
I cannot find any.
More...
Mark,
I understand, but please take a look at my original post www.elitetrader.com/vb/showthread.php?s=&postid=2542201#post2542201, where it was stated:
Here is some data of a particular trade I pulled from trade-alert.com. You might want to also know that the OI for the14 strike was 7621 and for the 10 strike was 17,829. Also, let say that over 90% of the buy leg was executed at the ask and over 90% of the sell leg was executed at the bid. The trade was executed as a one-block speared at 10:07am.

Quantity Symbol Expiry Strike Type Price Side Exch. Time Volume Spread Ivol Spot Change Close Link
18500 XLF Jan11 14 Puts $2.47 ASKSIDE 10:07:08 18500 SPD 39.12% 14.10 -0.23 $2.41 detail
18500 XLF Jan11 10 Puts $0.84 MIDMKT 10:07:08 18500 SPD 42.21% 14.10 -0.23 $0.83 detail

In any case, I am done with my illustration.
And oh.. just for the record, to me, the value of the information gathered from the order flow (volume, etc), is exactly on the same footings as the (value of the) information gathered from a technical analysis…

Hopefully, your trading today was better than mine.

Take care,

Bben
 
Quote from Bben1006:

In any case, I am done with my illustration.
And oh.. just for the record, to me, the value of the information gathered from the order flow (volume, etc), is exactly on the same footings as the (value of the) information gathered from a technical analysis…

Hopefully, your trading today was better than mine.

Take care,

Bben
Bben
More...

It never occurred to me to search out the first post. When you provided data in a later post, I had no reason to assume the information was incomplete.

Yes, my results today were outstanding. That's no big deal - I didn't do so well at the end of the rally, so this compensates.

Mark
 
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