Option Market Maker Questions

[VanishingMediator]

1) Is it "price fixing", "manipulation", "aggressive selling" or just that the order-book is not re-populating with new orders as deeply before the upmove occurred?
2) Do you have actual chart examples of what you're describing?

I equate price fixing with them not repopulating the order book. To do these things, they would collude with other HFT market makers and just drop out all the limit orders on one side to let the price go back to where they want it. They could also be doing some trading with each other with an agreement to equalize trades back and forth. Or both. The point is, it happens instantaneously (so what I would need is a video of it happening) to completely reverse a steady persistent trend that occurred over several minutes or more on negligible volume. It's the fact that it keeps happening, it persistently pins the price to the same point (that part I could have a chart for) and it always happens after a steady trend that makes me differentiate it from just a normal order making up the lesser volume but all in one direction rather than both directions.

Sometimes trends are so persistent that it gets far enough way from the previous pin point that a new one seems to be chosen for a short time, but eventually it will violently return to the old one if that extreme pressure does not continue (unless a person exits a massive options position)

I haven't really compiled a bunch of evidence and this is from me watching it happen. However, I could with statistical analyses if there is someone I can send it to.

 

[Martinghoul]

So assuming this is not paranoia, the people making the market for options and the underlying are obviously the same people and participating in non delta neutral strategies. Is this legal (assuming it can be proven)? I was under the impression that price fixing was illegal.

This IS paranoia.

 

[Windlesham1]

I used to trade on IB as as soon as my bids/offers went in a 20 lot would follow my trades-never really questioned it,as I have no interets or the smarts to care about other activity at the point of trading. I suspect many online platforms are 'perved' as you put it-the market is so completely and utterly bent it is practically straight.
Certainly here in the UK blatant manipulation is common and nothing is ever done about it. EG : Expiry at 10.10 -so there is an auction from 10.00- 10.10.
http://www.bbc.co.uk/news/business/market_data/stockmarket/3/default.stm

 

[Maverick74]

My bad made some money and "quit" for the day...

That is how I make the money

My issue is with counter moving as what stardust said. I stare at the option trade history all day. I see single contracts being traded often, and large bundles of contracts being traded that for expirations at least weeks away. This countermove stuff I am talking about happens regarding close to expiration options traded in large bundles. There will be a price countermove and pressure to stay/return there, and less market liquidity when they are in the money in terms of no theoretical price bids.

I can easily envision some sort of formula for picking a price to maximize option profits by keeping the majority of them less valuable than when sold. Does anyone know for sure that HFTs don't flash bids and asks only for aggregation for reporting what they are doing, and then dropping them to price fix? I mean, when you see a price go up for 5 minutes on 2.5 mil shares traded and then drop the same amount instantly after on 250k shares traded, I call it price fixing.

You need to study a little bit of economics.

 

[butterfacetrader]

I've been there too in this line of thinking a long long time ago.

Ultimately, I associate that as making a bad trade on my part.

Price action is the only truth in the market. Whether there is manipulation or natural forces, the price action is the price action. Conceptually, a good trader would have been able to see this price action ahead of time (manipulation and fundamentals considered) and profit.

What others have said about dynamic hedging is true. It is actually kinda feedback into the market that leads to options price pinning. For example, I was just looking at the GDXJ this week, and it was clearly pinned to $35, where the last few minutes they ramped it to get it above $35.

That said, I am sure there are hedge funds out there specializing in making maximum pain for the market after identifying what the price level is and profiting from it. They might take the other side of every trade and force it that way to deal maximum pain.

As a small time trader trading in sizes that are completely insignificant to the market, I don't think a retail traders positions can really influence price action or any market maker or hedge fund to move/manipulate the market against you specifically.

 

[SIUYA]

I used to trade on IB as as soon as my bids/offers went in a 20 lot would follow my trades-never really questioned it,as I have no interets or the smarts to care about other activity at the point of trading. I suspect many online platforms are 'perved' as you put it-the market is so completely and utterly bent it is practically straight.
Certainly here in the UK blatant manipulation is common and nothing is ever done about it. EG : Expiry at 10.10 -so there is an auction from 10.00- 10.10.
http://www.bbc.co.uk/news/business/market_data/stockmarket/3/default.stm

FWIW - there are a lot of diming systems whereby a MM might always want to be part of the best bid or offer up to a certain level.
being a MM is largely about participating in as many trades as possible with a theoretical edge and constantly spreading, and so if a client buying can somehow attract a seller at a good/favourable price then systems are designed to try and capture a part of that....there is nothing bent or rigged about that.

 

[StarDust9182]

Price action is the only truth in the market. Whether there is manipulation or natural forces, the price action is the price action. Conceptually, a good trader would have been able to see this price action ahead of time (manipulation and fundamentals considered) and profit.
.......

As a small time trader trading in sizes that are completely insignificant to the market, I don't think a retail traders positions can really influence price action or any market maker or hedge fund to move/manipulate the market against you specifically.

"Price action is the only truth":

Price action is dependent on time frame traded so there are other truths in the market IMO. "The market can stay irrational longer than you can stay solvent." - "I work for a Government I despise for ends I think criminal." - "But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again." - all quotes of JM Keynes, the patron saint of money printing as a policy of infinite economic riches.

Options are about shifting risk. Not retail risk necessarily but the risks of much larger traders. Risk is also time frame dependent. If one can figure what is happening and by whom in the market, one's trading will improve immensely.

Every trade affects the market, however peeing in the ocean will not make much of a difference.