I am an experienced option trader and know all of the basics. I have a math/statistics background and studied derivative pricing for an actuarial exam (although that was quite a while ago) and understand the general idea behind most of the parameters although now I tend to think of them more in laymans terms (such as the fact that options decrease in value more and more quickly as expiration approaches) and have some understanding of market maker hedging strategies (or at least the ones they should be using)
My questions are mostly about market behaviors that almost seem like cheating, despite the fact that I am not trading in volumes significant to option open interest (but perhaps significant if entry prices and time in positions are considered)
Here is a list of behavior I see:
Also is anyone aware of any hedging activities that could explain this without it being strictly price fixing (or perhaps grey borderline behavior)? Does the recent exemption to the Volcker rule for market makers affect this (To where they can engage in price fixing under the guise or ambiguity of successful market making?)
Finally, this behavior seemed to occur more the longer I have been trading. Initially it seemed to be much easier to make profitable trades. Is it possible my retail broker could be relaying information about my trading activity if I was to be identified as someone who could potentially cause a lot of market maker losses?
My questions are mostly about market behaviors that almost seem like cheating, despite the fact that I am not trading in volumes significant to option open interest (but perhaps significant if entry prices and time in positions are considered)
Here is a list of behavior I see:
- Trades almost immediately go against me, but more significantly than the amount required to trigger my limit orders. As soon as the order is filled, the underlying moves significantly in the other direction.
- There is what I would describe as a large amount of resistance to my trades becoming profitable. Large limit orders appear as barriers as the trade nears profitability, the option bids are below theoretical prices nearing that point, and there are often large price movements in the other direction on much lower volume if the trade becomes profitable such that I often need limit orders already in place right near the threshold of profitability in order to have any hope of getting out positive. When I do get out, the price may almost immediately move in the direction that would have made my trade more profitable and to a large degree. This kind of behavior lessens the longer I am in the trade.
- On stocks where there is an extreme amount of volatility where I know many people other than me are constantly selling and buying options, there seems to be a great deal of price fixing behavior. Many people on stock forums recognize this (aka price pinning), and often times it seems that these chosen price points are relevant to nearby option open interest. That is after large movements up or down reverse movements of the same or greater magnitude on lower volume occur on what I assume is HFT trading or sudden lack of liquidity in one direction.
Also is anyone aware of any hedging activities that could explain this without it being strictly price fixing (or perhaps grey borderline behavior)? Does the recent exemption to the Volcker rule for market makers affect this (To where they can engage in price fixing under the guise or ambiguity of successful market making?)
Finally, this behavior seemed to occur more the longer I have been trading. Initially it seemed to be much easier to make profitable trades. Is it possible my retail broker could be relaying information about my trading activity if I was to be identified as someone who could potentially cause a lot of market maker losses?