option fill Qs and observations

A

Abundance Magnet

so today was an interesting day... I had 2 fills that were filled just above the bid (buying). normally, I would need to get to the mid or higher to get the fill. these fills were instant too. they didn't sit on the market and then someone met my price. why did these 2 fills get filled instantly but were just a bit above the bid? I have the 2 level data as well... My guess is that there was either an order behind it on one of the exchanges that i didn't see, or maybe it was filling a spread...

the second observation i had was where I only got 1 contract filled out of a larger order. eventually, I bumped my price and then got the remainder filled. It felt like the MM was playing games with filling just one contract and either leaving me with the remainder to be hanging, or i could choose to move to their price. Does this happen as well?

as mentioned, most of the time my offers at just above the bid to buy, or just below the ask to sell are not completed. Today was unusual... in a good way of course but still made me wonder about what happens behind the curtain...

thanks!
 
And how wide was the market?

If it was usually a dollar wide, and today (while you were in for a Buy), it was 50¢, maybe that's because some other retail was there before you. So, you go in at 60¢ thinking you're 'just above the Bid' when in fact, you're now 10¢ above the other guy, and above the Mid.

Ah, well, we can't win 'em all.

(Or, it's exactly as you wondered: a propitious meeting of retail Buy and retail Sell, where you were the beneficiary. Yayyyyyy!)
 
The bid and ask don't necessarily center on some "fair" value. They move with market forces. Offering up attractive premium in a cheap volatility market will get a fill regardless of what someone's willing to say they'll sell it for.
 
tommcginnis said:
And how wide was the market?

If it was usually a dollar wide, and today (while you were in for a Buy), it was 50¢, maybe that's because some other retail was there before you. So, you go in at 60¢ thinking you're 'just above the Bid' when in fact, you're now 10¢ above the other guy, and above the Mid.

Ah, well, we can't win 'em all.

(Or, it's exactly as you wondered: a propitious meeting of retail Buy and retail Sell, where you were the beneficiary. Yayyyyyy!)
More...
It was about a 10% spread Or less. I typically trade options with a 5 to 10 percent spread.
 
beerntrading said:
The bid and ask don't necessarily center on some "fair" value. They move with market forces. Offering up attractive premium in a cheap volatility market will get a fill regardless of what someone's willing to say they'll sell it for.
More...
Yeah, I get it. That why I've built my own price models and track the previous prices as well. Can't hold too many positions as a result but it gives me a good sense as to the market...
 
So just an observation:
Q's trade on 12 option exchanges
The quotes flash a lot given the number of MMs streaming quotes
NBBO ain't easy to maintain and therefore linkage is problematic
Most MM's either price off the future or simply set their quote engine to match/improve depending upon their appetite
Appetite frequently changes without a change in price when something else the option matrix trades and an MM will trade something to hedge something else they just traded
Appetite can also be driven by a routing deal and a desire to NOT ship the order
Quotes are pretty much driven by the three biggest MMs and a lot of the other MMs just drive from them
If the options trades on a dozen different venues it is not uncommon for resting order between the NBBO to frequently get filled - especially if the size is not extraordinary
Think of the days when the SPX options were only pit traded and EVERYONE in the industry knew the screen wasn't the real market
Exchanges allow dark liquidity tied to routing deals so the quote becomes even less relevant in many market conditions
There a lot more observations but at some point it just becomes clutter
 
ajacobson said:
So just an observation:
Q's trade on 12 option exchanges
The quotes flash a lot given the number of MMs streaming quotes
NBBO ain't easy to maintain and therefore linkage is problematic
Most MM's either price off the future or simply set their quote engine to match/improve depending upon their appetite
Appetite frequently changes without a change in price when something else the option matrix trades and an MM will trade something to hedge something else they just traded
Appetite can also be driven by a routing deal and a desire to NOT ship the order
Quotes are pretty much driven by the three biggest MMs and a lot of the other MMs just drive from them
If the options trades on a dozen different venues it is not uncommon for resting order between the NBBO to frequently get filled - especially if the size is not extraordinary
Think of the days when the SPX options were only pit traded and EVERYONE in the industry knew the screen wasn't the real market
Exchanges allow dark liquidity tied to routing deals so the quote becomes even less relevant in many market conditions
There a lot more observations but at some point it just becomes clutter
More...
Wow.. You're just a wealth of information. Bottom line for me. . Just keep fishing when you're trading smaller lots.
 
Abundance Magnet said:
so today was an interesting day... I had 2 fills that were filled just above the bid (buying). normally, I would need to get to the mid or higher to get the fill. these fills were instant too. they didn't sit on the market and then someone met my price. why did these 2 fills get filled instantly but were just a bit above the bid? I have the 2 level data as well... My guess is that there was either an order behind it on one of the exchanges that i didn't see, or maybe it was filling a spread...

the second observation i had was where I only got 1 contract filled out of a larger order. eventually, I bumped my price and then got the remainder filled. It felt like the MM was playing games with filling just one contract and either leaving me with the remainder to be hanging, or i could choose to move to their price. Does this happen as well?

as mentioned, most of the time my offers at just above the bid to buy, or just below the ask to sell are not completed. Today was unusual... in a good way of course but still made me wonder about what happens behind the curtain...

thanks!
More...
Were you looking at level II for one exchange, of were looking at a consolidated (NBBO) level II?
Because if you were looking at only one exchange, that's only 1 out of 15 option exchanges. A very small window.
 
rb7 said:
Were you looking at level II for one exchange, of were looking at a consolidated (NBBO) level II?
Because if you were looking at only one exchange, that's only 1 out of 15 option exchanges. A very small window.
More...

What's consolidated nbbo? I haven't seen that as a data feed option add on.. .
 
Abundance Magnet said:
What's consolidated nbbo? I haven't seen that as a data feed option add on.. .
More...
'NBBO' stands for 'National Best Bid and Offer'. All the quotes/orders of all of the 15 option exchanges are consolidated into 1 feed.
 
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