Opening and closing auctions for single stock options

[Maverick2608]

I believe I remember this subject being discussed in a previous thread. However, I have not been able to find that thread – possibly because it was not the main subject of the thread.

I believe I remember the consensus was not to participate in the opening and closing auctions when trading single stock options. However, does anyone know why? Is is because of a general lack of liquidity?

 

[Robert Morse]

I would recommend never trading on the open/close for options. There are 15 option exchanges and no price protection on the open or close. I'm not aware of any action process and if there were it would only be at one exchange.

 

[Maverick2608]

I would recommend never trading on the open/close for options. There are 15 option exchanges and no price protection on the open or close. I'm not aware of any action process and if there were it would only be at one exchange.

Apparently if you direct an OPG order to CBOE using IB, you will participate in an opening auction (and similarly for a closing auction at CBOE).

You could argue that there are almost as many exchanges for stocks, but because there is only one opening and one closing auction, it can make sense participating in the auctions for stocks. I guess a similar argument could be made for options, if only one exchange offers opening and closing auctions.

However, due to the multitude of different expirations and strike prices, I assume the liquidity in the auctions will generally be too low.

 

[Robert Morse]

Listed Stocks orders for the open and close should always be sent to the primary where the stock is listed. Options do not have that.

Try it. When the CBOE market is 1.00 x 1.30 on the open and you buy 50 at 1.30 and BATS has a 1.20 offer 5 seconds later, I hope you remember this post.

 

[JSOP]

Listed Stocks orders for the open and close should always be sent to the primary where the stock is listed. Options do not have that.

Try it. When the CBOE market is 1.00 x 1.30 on the open and you buy 50 at 1.30 and BATS has a 1.20 offer 5 seconds later, I hope you remember this post.

Is there any benefit in participating in the open/closing auction of options? Perhaps with a limit order? Using your example, what if you were able to get filled at 1.00 on the CBOE at the open and you were able to sell it on BATS at 1.20 5 seconds later? Is that possible?

 

[Robert Morse]

Is there any benefit in participating in the open/closing auction of options?

Maybe. If you know exactly what you are willing to pay for that option (or sell) at 9:30am. If you enter that order at 9:15am or 9:25am...you really do not know what the stock will be trading at at 9:30am yet. I would avoid it. 15 option exchanges, good luck trying to pick up a good opening on one exchange in front of the MMs. I'd say for any option above 25 delta, I'd wait until 9:25am.

 

[Maverick2608]

Listed Stocks orders for the open and close should always be sent to the primary where the stock is listed. Options do not have that.

Try it. When the CBOE market is 1.00 x 1.30 on the open and you buy 50 at 1.30 and BATS has a 1.20 offer 5 seconds later, I hope you remember this post.

I will try to experiment and become more educated. I am a complete novice within the realm of options.

I assume, though, that if the CBOE auction is a real auction, the product of the auction would be a single price at which all orders are crossed and not a bid-ask spread of 1.00 x 1.30. If my order were simply to be matched against the spread of a market maker on CBOE, I agree that it would be better to wait for the entire options market to open.

 

[Robert Morse]

I assume, though, that if the CBOE auction is a real auction

It is, but does not include other exchanges. THese are my suggestion. Do without what you want.

1. Never enter market orders with options.
2. Never enter STOP orders with Options, see#1.
3. Never enter market on open or close orders in options.
4. Always take responsibility for best execution by working your option order.

Good luck,
Bob

 

[tommcginnis]

I assume, though, that if the CBOE auction is a real auction, the product of the auction would be a single price at which all orders are crossed and not a bid-ask spread of 1.00 x 1.30. If my order were simply to be matched against the spread of a market maker on CBOE, I agree that it would be better to wait for the entire options market to open.

Much wider than 1x1.3 -- more like 1x10.

You can observe bid-ask spreads of 33%-50% or more, in S&P options, in the middle of the day. (And that's regardless of SPX, ES, SPY, etc.) This is for the vehicle that sets the standard for liquidity. In lesser traded underlying, in the middle of the day, you can find 10¢-50¢ spreads on strikes within 2σ of the market. That's 5x, to be clear. In the middle of the day.

Is it possible to buy-at-open a single option for 11¢ and immediately sell at 89¢? Yes -- but how many?? Your first would likely be a statistically-driven accident. Your second would not sell, and so you'll drop it down to 85¢, and in a minute, you'll be down to 29¢ hoping like hell someone catches you before you cross your buy-price. (See Bob's post above.) At that point, everyone else will disappear for a minute, having watched your well-lit demonstration of intent.

Thin thin thin = trouble trouble trouble.

(An interesting experiment, though. It'd be fun to do (with someone else's money) on a bunch of instruments, and see the differences.....)

 

[ironchef]

I would recommend never trading on the open/close for options. There are 15 option exchanges and no price protection on the open or close. I'm not aware of any action process and if there were it would only be at one exchange.

Can you explain what you meant by no price protection? I always trade with limit orders. And I only trade equity options, not index options.

I quite often traded right from the get go market open, usually within a few min of opening. I got better fill for my orders at open. Somehow the MM hadn't adjusted their model and still traded base on open underlying + old IV... I don't know???

I seldom traded at close, almost always had to pay a little extra to get the fill I wanted. Don't know why either???