Mark Price

[guru]

Their mark price is different from the mid price (which they also display).

Who ever said that they were the same?

That's what IB also says on their web site, but it is not what they show in TWS as Mark Price for options.

Prove it. Show screenshots and your explanation why the above post by
vivaskyliska isn’t true.
Otherwise you’re asking others to do your homework, look at different data than you’re looking at, and discuss something unrelated to what you’re seeing.

 

[tradegoodstocks]

See screenshot attached. I'm looking at the mid and mark prices for the box combos. But the mark prices for the individual legs are also not the mid prices.

 

[guru]

OK, then I suspect it is the calculated theoretical price as mentioned here, though without exact formula:
https://interactivebrokers.github.io/tws-api/tick_types.html
"The mark price is the current theoretical calculated value of an instrument. It is a calculated value."

You could try contacting IB to confirm, or for more info.

 

[guru]

There is also one more answer here, which still doesn't match your screenshot, but maybe it would match under some conditions:
https://www.elitetrader.com/et/threads/question-mark-price-vs-last-price.227050/
"The answer is that for options we do use the middle of the bid/ask spread for the current mark price but for cash settled indices (which I think they are describing below) we go off of the last due to the fact that the underlying is not actually tradable. It is possible that somebody is looking at the closing price for a stock which can also be referred to as the mark but in the afterhours the price may be higher or lower so that would create a difference."

 

[tradegoodstocks]

I have seen the statement from an IB person that you are referencing quoted in several places on this forum, but I am unable to comprehend the logic of this "but for cash settled indices ... we go off of the last due to the fact that the underlying is not actually tradable" - what does the mark price definition / determination have to do with whether or not the index is cash settled and whether or not the underlying is tradable?

"It is possible that somebody is looking at the closing price for a stock which can also be referred to as the mark" - How does that answer the question what IB defines / how IB calculates the mark price? I'm not interested whether it is possible that "someone" looks somewhere, but rather how IB calculates the mark price.

All that is setting aside the fact that what he says in his first sentence (mark = mid point) is not what IB displays as mark price, at least for me. The whole statement is confusing on so many levels that I think the IB person had no idea what he was talking about.

 

[guru]

I have seen the statement from an IB person that you are referencing quoted in several places on this forum, but I am unable to comprehend the logic of this "but for cash settled indices ... we go off of the last due to the fact that the underlying is not actually tradable" - what does the mark price definition / determination have to do with whether or not the index is cash settled and whether or not the underlying is tradable?

"It is possible that somebody is looking at the closing price for a stock which can also be referred to as the mark" - How does that answer the question what IB defines / how IB calculates the mark price? I'm not interested whether it is possible that "someone" looks somewhere, but rather how IB calculates the mark price.

All that is setting aside the fact that what he says in his first sentence (mark = mid point) is not what IB displays as mark price, at least for me. The whole statement is confusing on so many levels that I think the IB person had no idea what he was talking about.

As I understand it, that statement means that the mark would be equal to mid price if/when not using the Last price to replace either the bid or ask.
But I agree that all those statements and explanations don’t truly explain how the Mark price is derived for options, incl your example.
Though I still do believe that the Mark price is the theoretical option price calculated internally by IB as mentioned in their API. Here are additional clues:
https://interactivebrokers.github.io/tws-api/option_computations.html

You likely won’t find IB’s option pricing model, which is their own internal model and may also change over time, so your best bet is to calculate your own option prices through IV or price smoothing or whatever option price model you’d like to use, and compare it to IBs.
Otherwise you can simply rely on IB’s model and the calculated Mark price as a free service that calculates those prices for you. From that point of view you don’t need to understand how it’s calculated because it may involve functions and smoothing or approximation that is provided as a service. Though it may be as simple as smoothing the IV of surrounding options and using BS to calculate the price.

Alternatively try reaching someone at IB to discuss this...

 

[tradegoodstocks]

Thanks, Guru. I'm relatively new to options, but my understanding is that for options, neither the "last" nor the "mid" prices are considered sensical for valuation purposes, as both might be heavily and randomly affected by customer orders. For example, if I place a standing order at the mid point, until my order gets filled the new midpoint would move half way to the bid or ask.
Actually in my example it didn't, but I guess that's because it was a complex order.
From that perspective it would just make sense that the mark price has to be some theoretical value.

 

[guru]

Thanks, Guru. I'm relatively new to options, but my understanding is that for options, neither the "last" nor the "mid" prices are considered sensical for valuation purposes, as both might be heavily and randomly affected by customer orders. For example, if I place a standing order at the mid point, until my order gets filled the new midpoint would move half way to the bid or ask.
Actually in my example it didn't, but I guess that's because it was a complex order.
From that perspective it would just make sense that the mark price has to be some theoretical value.

True that those prices are affected by customer orders, so can’t be relied on.
I deal with the same issue and my solution is to look at the 1-5 minute chart of the option combo (using Mid pricing in chart config), then determine the reasonable price visually from the chart. It’s a very slow process due to slow data feed from IB, and the chart needs to be scaled manually to show proper price range, otherwise it’s usually just a thin line within a wide price range - seems like a bug.

 

[Aquarians]

For a while I worked on a portfolio manager used by hedge funds. Think 100s of thousands of trades, mark-to-market and compute the unrealized PNL. Realized it's easy coze there's only one price but like OP asked, what to use for unrealized? Actually they used the "theoretical value" (TV) and I adopted it in my software too. That's neither bid nor ask nor their average, but fit the volatility curve to the market and use that instead. The advantage is you have a price to use even when there's no market for a strike anymore. Disadvantage is that unless one is careful with fitting the vol, the prices can be a bit off.