Options Bid/Ask in Penny Increments (instead of 5 cents)?

U

Ukrift

Hi. Newbe question:
I am using IB's TWS to learn to trade options. For routing I am using their "Smart Routing" if that is relevant.
I see that some of the options for a company I am interested in sell for 3 cents or 6 cents so penny increments are possible. I checked the list of stocks in the Penny Pilot program and the company is listed there. Yet the vast majority of the bid/ask quotes are in 5 cents increment even for options below the $3.00 limit.

I want to buy a call option that is really a long shot. The price should be in the 3-4 cents range or even lower. There are sellers and there is large enough supply but no buyers (other than me). The ask is 50 cents. When I place an order with bids of 1, 2, 3, 4 cents, the bid DOES NOT show in the quotes window. As soon as I increase the bid to 5 cents the transaction is completed.
It is the same for an option (of the same company) that should sell between 5-10 cents. I place an order with bid of 5 cents and it DOES show up in the quotes window. Then I increase the bid to 6, 7, 8, 9 cents and the bid in the quotes window REMAINS at 5 cents. As soon as I increase the bid to 10 cents the transaction is completed.
I believe the seller is willing to go below 10 cents but never sees my bids between 5-10.

Why is this so. I don't want to be paying 10 cents for something that a seller might be willing to sell at 6 cents.
Could it be the high ask price? Maybe I should place an order to sell one of the 5 cent options that I bought with an ask of 10 cents. Would this allow the for the bid/ask to be in 1 cent increments?
 
  • You are too focused on the options.
  • No mention of the underlying in your post.
  • How do you think the underlying will perform during the time-frame of your option trade?



:)
 
The underlying is trading in the $15-$25 range and strike prices I am interested in are multiples of that. Yes, as I said a really long shot. These are LEAPS options I am talking about.

When it comes to the trading software I might be using the wrong terms for the various windows but I think it is clear as to what I am talking about.
 
Try a non SMART routed order. Additionally search for SMART and "marketable". It's entirely possible you're not even being seen by the market due to use of SMART routing.
 
i960 said:
Try a non SMART routed order. Additionally search for SMART and "marketable". It's entirely possible you're not even being seen by the market due to use of SMART routing.
More...
Thanks i960, will do.
 
LEAPS are also usually pretty illiquid. Not sure which underlying you're using, there are some mega-caps in that price range, but typically that's the case. That also contributes to the wide spread.
 
i960 said:
Try a non SMART routed order. Additionally search for SMART and "marketable". It's entirely possible you're not even being seen by the market due to use of SMART routing.
More...

According to the document linked below, it won't matter if your penny-increment option order is routed via SMART or not. IB states that penny increment option orders are considered "discretionary" and only displayed to other IB customers and IB affiliates at the penny-increment price.

https://gdcdyn.interactivebrokers.c...formSampleView?file=penny_option_pricing.html
 
i think,
even though you don't see your order for 1,2,3,4,6,7,8,9 cents, etc,
it can still be executed at that price,
from my experience...

i put in orders all the time, that don't appear, but occasionally get executed

marc
:cool:
 
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