I don't trade your quantity, but my trading unit is a spread. I care less about the price of the legs than the net of the spread, so that is what I control.
Large LEAPS Orders
- Thread starter thomas3133
- Start date
Not to speak for Spin, but I think what he is saying is if you lose some money on your long fills, you can make that up by selling some OTM options - that would limit your gains on those spreads, but would reduce your cost per long option for example. At least thats how I took it.
JJacksET4
HEY! That's what I said ... or at least was trying to say.
As an off the top of my head made up example, suppose I was trying to buy 100 AAPL Jan '13 400 strike calls and each 20 contract purchase moved the ask up a bit (UL not moving).. Assume that by the time I got all 100, my highest puchase was 20-30 cts higher. Selling 2 or 3 500 strike calls would bring in enough to offset this "overpayment". Say it's two short calls. I end up with 98 long 400 calls and 2 long 400/500 bullish verticals. If AAPL zooms up smartly, what you give up on 2 verticals (opportunity loss of the overhead cap) means nothing compared to 98 calls winning. This example is just a possible way to offset the extra slippage. It won't fit every situation.
Maybe a better price but not necessarily a reasonable price
I think that a MM is more likely to do something with a spread order where both legs have wide B/A spreads than a single leg order but that's no more than my anecdotal opinion. It's really going to come down to size available on the day you trade.
And even if this were true, it makes no sense to do spreads to save a few nickels on the B/A if your selection/direction ability is good and you get the big move that you expect. IOW, you pick the strategy that best fits your outlook and get the best fill you can rather than pick a potentially poorer preforming strategy to save a few cents on some leg(s) - eg 100 verticals instead or 100 long calls. You would do 100 spreads because you prefer the R/R.
So I will actually have to have pre-arrangements with someone that is willing to take the other side of the position? In such method, does the clearing take place as with other listed options -- through the OCC and the exchanges -- or does it being made in some other way and is considered OTC? Please elaborate.
It is still a normal listed trade, withan exchange print etc. The only difference is that instead of taking a price off the screen (which is usually pretty wide and small in size) you trade with a "human marketmaker". Another way of executing is to talk to a broker that will shop your order.
Ps. A bit of advice on the size options execution - you might get a better level if you trade tied and execute delta separately.
rmorse
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These are not pre-arranged trades. It's a process of price discovery that takes place both off and on floor. In the end, before "printing the trade", price discovery also occurs in a trading crowd, then the order is traded on a listed exchange. The electronic markets shown on the screen are only that. They do not included all on and off floor traders. Shopping an order bring attention to that market and competition.