Market Makers are colluding to price fix for short/medium term

VanishingMediator said:
Monopolies (vertical or horizontal) are not capitalistic. The governments real one purpose should be to prevent anyone else from becoming a government and stopping competition.
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Well I agree completely. I support anti-trust laws and the Volcker rule as well, however you'd be surprised how many people think these things aren't "real capitalism".

Nontheless, I still think you are wrong about the collusion...consider what I said about global risk and correlations. The more correlated a market is with others, the harder it is to corner the market because you'd have to break arb relationships. You say strikes in AAPL were being cornered, what about the correlation of strikes with other strikes (also horizontally accross term structure), and of strikes with underlying? Or underlying with broad market? If someone throws in a large order in ES, it would most likely affect AAPL as well, and it's strikes....
 
I used to get calls from brokers all the times. They would say "customer X is entering an order to sell 5 AAPL May 300 calls" as they were entering the orders on the broker's website.

I once asked them once which customers they would call us about.

He said they would only call us with customers who had traded thousands of options and made hundreds of percent.

I would then call Timberhill, Citadel, and Susqehanna and we decide how to screw the 5 lot customer. Hundreds of contracts would often trade as all these phone calls were happening, but our goal was to take money from THIS 5 lot trade.

The brokers would even give us the customers' names, addresses, and even tell us how much of their net worth we were taking from them.

This happened probably 10 times a day.

OP must be on that list.

I'm sure the current institutional guys can corroborate this.....
 
newwurldmn said:
I used to get calls from brokers all the times. They would say "customer X is entering an order to sell 5 AAPL May 300 calls" as they were entering the orders on the broker's website.

I once asked them once which customers they would call us about.

He said they would only call us with customers who had traded thousands of options and made hundreds of percent.

I would then call Timberhill, Citadel, and Susqehanna and we decide how to screw the 5 lot customer. Hundreds of contracts would often trade as all these phone calls were happening, but our goal was to take money from THIS 5 lot trade.

The brokers would even give us the customers' names, addresses, and even tell us how much of their net worth we were taking from them.

This happened probably 10 times a day.

OP must be on that list.

I'm sure the current institutional guys can corroborate this.....
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What do you think about what happened to Pipeline? Allegedly, even institutional broker-dealers such as GS are doing this type of 'front-running' with Sigma-X now. It seems the best way to avoid these types of situations is to use an agency brokerage.
 
MRBRETTONWOODS said:
What do you think about what happened to Pipeline? Allegedly, even institutional broker-dealers such as GS are doing this type of 'front-running' with Sigma-X now. It seems the best way to avoid these types of situations is to use an agency brokerage.
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The pure agency brokerages were our best sources.

We would literally make $200/day on this strategy. It was definitely worth the 10 fulltime guys devoted to it.
 
TskTsk said:
Well I agree completely. I support anti-trust laws and the Volcker rule as well, however you'd be surprised how many people think these things aren't "real capitalism".

Nontheless, I still think you are wrong about the collusion...consider what I said about global risk and correlations. The more correlated a market is with others, the harder it is to corner the market because you'd have to break arb relationships. You say strikes in AAPL were being cornered, what about the correlation of strikes with other strikes (also horizontally accross term structure), and of strikes with underlying? Or underlying with broad market? If someone throws in a large order in ES, it would most likely affect AAPL as well, and it's strikes....
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That is what I am saying, the share price of the underlying is also moving in relation to option sales.
 
a guy in another thread was talking about how wide the spread on recent options were. I went through the list of all options sold in the last hour or so in large lots. They were all worth one cent less than they sold for even when the underlying price had not moved. This is one thing I am talking about, but makes perfect sense if only one person is buying or selling the options.
 
fb is an example of what I am talking about. They have a huge increase in advertising, and love to outpace their estimates which means they will likely finaggle their spending etc to beat estimates when they have this much adv growth and ability to do so.

Right before earnings the stock drops an enormous amount... I gaurantee you that many people are not shorting facebook right before earnings. I call price fixing, then after earnings it will shoot up to where it was before. Then after people sell their options, they will allow it to climb based on the natural desire to invest.

They are simply trying to prevent short term volatility but doing that is not valid market making activity because they are arbitrarily choosing a time window where volatility is ok and creating market inefficiency in the here and now.
 
An other obvious sign, right before close 100s of thousands of shares bought several times in a row in the span of a few seconds.

Each time the price drops back before the next one from HFTs how can they drop the price that quickly and repeatedly while still competing with each other?
 
VanishingMediator said:
a guy in another thread was talking about how wide the spread on recent options were. I went through the list of all options sold in the last hour or so in large lots. They were all worth one cent less than they sold for even when the underlying price had not moved. This is one thing I am talking about, but makes perfect sense if only one person is buying or selling the options.
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Not sure I understand this. Do you mean the bid dropped one cent after they were sold (because the bid was taken out), immediately lowering the value? A big supply of vol means price of vol must neccessarily lower.

VanishingMediator said:
Right before earnings the stock drops an enormous amount... I gaurantee you that many people are not shorting facebook right before earnings. I call price fixing, then after earnings it will shoot up to where it was before. Then after people sell their options, they will allow it to climb based on the natural desire to invest.

They are simply trying to prevent short term volatility but doing that is not valid market making activity because they are arbitrarily choosing a time window where volatility is ok and creating market inefficiency in the here and now.
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You're saying MMs are taking on massive short positions in FB? That seems like a huge risk and pretty stupid thing to do, MMs taking directional prop bets when their specialization is mkt-neutral market making. A good way to bankrupt yourself imo...

VanishingMediator said:
An other obvious sign, right before close 100s of thousands of shares bought several times in a row in the span of a few seconds.

Each time the price drops back before the next one from HFTs how can they drop the price that quickly and repeatedly while still competing with each other?
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This seems natural TBH. Everytime market spikes from some huge orders coming in they almost always go right down again. Hidden delayed liquidity imo.


Anyways there is no doubt a lot of shady stuff is going on, but I think you are wrong on most of the above. I recommend to look at the nanex site (http://www.nanex.net/FlashCrash/OngoingResearch.html). I read on it a lot, lots of interesting research there on predatory / non-efficient mkt activity like quote stuffing etc.

One of the coolest / most destructive things I saw is a HFT taking a stock from 91 to 0.01 in a couple of milliseconds then back up. See: https://www.youtube.com/watch?feature=player_detailpage&v=9D0NdWX950I#t=85s
 
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