Options/Futures Contracts Limitation

Please, gentlemen...there are other threads on market manipulations.

Let's talk about exotic options as I have outlined. Is it possible for large brokerage firms to create and sell me these exotic options? And will it be a violation of contract limits for brokerrage firms to create such exotic products?

Low costs and speed of execution are the intended advantages I am trying to get. Because it takes more time and costs to buy, say, 500k ES contracts. It's faster and more cost efficient to buy just 1 exotic options, provided its price is not far off from a regular ES contract Bid/Ask.
 
Quote from bvam1:

Please, gentlemen...there are other threads on market manipulations.

Let's talk about exotic options as I have outlined. Is it possible for large brokerage firms to create and sell me these exotic options? And will it be a violation of contract limits for brokerrage firms to create such exotic products?

Low costs and speed of execution are the intended advantages I am trying to get. Because it takes more time and costs to buy, say, 500k ES contracts. It's faster and more cost efficient to buy just 1 exotic options, provided its price is not far off from a regular ES contract Bid/Ask.
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You're confusing exotics with over-the-counter, interbank conventions. Just want to be clear that you're referring to basic structured product and not exotic options.
 
Sorry, shouldn't have used the word exotic because it can be confused with exotic options.

What I meant to ask is: If I provide large enough business to brokerage firms, would they be willing to create a new product, as mentioned in my first post, that fits my needs? And if such a product is created, would it violates the contract limits regulation? (since I want something that has an equivalent value of, say, 500k ES contracts).


And riskarb, I am reading your new journal and find your discussion of exotic options very interesting. My knowledge of them are very limited, but it seems that these options can give me greater strategic flexibility. Most of my experience and knowledge are in equity options. However, you got me interested in these exotic options, especially, barriers.

Could you guide me to a good place to get additional info on them (ie. exchanges that trade them)? Also, a place that gives quotes would be very nice. Ty!
 
It's tough to find any extensive info on these types of deals, since they are done with larger players and tend to be private and exclusive transactions.

Many of the bulge bracket firms that deal in these products have many clients that are looking for the same things. In your example, the counterparty could be another client of the firm who wants a short position - maybe even a larger one - and they offer your deal as a partial fill. Maybe both parties get on the phone in the morning, agree on a lot size and a price (say VWAP for that day) and the deal is done. This is ideal for the brokerage because they are taking the middleman's cut and are not exposed. Another option is to deal with one side, then split the opposite side among several other clients in the form of other products that reduce the risk. The "other side" may even be a prop desk within the firm. The least attractive option is for the firm to just take the other side.

Since these firms have so many high end clients, it's usually easy to locate a counterparty, especially at favorable terms.
 
Quote from Avid_Consumer:

fair enough. the paranoia is a little severe at times. i just remember in early 03, when the er traded about 10-15k contracts a day and it was like taking candy from some poorly informed retiree somewhere.

my friends at the time said it was like 'watching turtles make love' and wouldn't trade it with me. i'm no longer particularly competetive in this market, and find that no matter how or where i enter, or on what systematic basis, it's profoundly less likely to move in my favor regardless of tactic.. almost as if someone has gained an incredible advantage and really leapfrogged the heck out of old successful tactics. it squeezes like i am indeed against a very nimble mm with the expense structure and informational power to squeeze for ticks, in the 1000s of contracts

things change, it's probably just natural forces. i've moved on
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I agree completely that there are huge day traders in the market that throw ER2 all over the place.

I think what is happening is the Hedge Fund/large institutional day trading firms have changed their business objective now that the markets are electronic. They call it "high frequency trading".

Let me explain-----
When the markets were pit traded the local dominated the intraday profitability. The big names outside the pit like George Soros focused on the big picture and made macro trades that would be multiday multiweek trades.

Now that everything is electronic the big buzz word in the industry is "HIGH FREQUENCY TRADING". Basically this is the algorithm trader taking over the locals job. Many hedge funds/institutions today look to make quick scalps instead of massive market plays. Not only can they push a market like ER2 around, but they are connected everywhere in the world and can hedge in any correlated contract. If they find a weakness in ER2 they can push it around with size and maybe hedge with NQ, ER2 options, spiders, stock basket, ES, etc.

For example firm 815(goldman sachs customer account) is on almost every price level in ER2. I have heard they are players in every index futures contract. I do not know how they make money, but they have taken over the locals job of making markets!!!!
 
That's what happens when the biggest "local" has a low 9-figures account and all of these trading houses have 10 and 11-figure accounts. Watch out for the elephant stampede!
 
Quote from bvam1:

Sorry, shouldn't have used the word exotic because it can be confused with exotic options.

What I meant to ask is: If I provide large enough business to brokerage firms, would they be willing to create a new product, as mentioned in my first post, that fits my needs? And if such a product is created, would it violates the contract limits regulation? (since I want something that has an equivalent value of, say, 500k ES contracts).


And riskarb, I am reading your new journal and find your discussion of exotic options very interesting. My knowledge of them are very limited, but it seems that these options can give me greater strategic flexibility. Most of my experience and knowledge are in equity options. However, you got me interested in these exotic options, especially, barriers.

Could you guide me to a good place to get additional info on them (ie. exchanges that trade them)? Also, a place that gives quotes would be very nice. Ty!
More...

They're trade off-exchange between banks and trading firms, hedge funds, etc... They're phone quoted through a trading desk and some offer online markets in small notionals.

www.clickoptions.com is operated by SocGen and will quote fixed expirations an strikes on index and individual euro-listed equity options. They offer an "exotics 101" primer as well.
 
Interesting.

I think I've found a huge, huge market inefficiency. But there's an assignment risk attached to it. Perhaps, by using exotic options I can let someone else bear the blunt.
 
it looks like the CME may have removed position limits from the information and brochures listed on their site regarding stock index futures. the ER2 i believe was 1500 through middle of 06, then up to 10,000. does anyone know, has this increased again?

thx
 
Quote from bvam1:

Perhaps, by using exotic options I can let someone else bear the blunt.
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I'm pretty sure the drug carry trade is willingly being done already.

You'll have to find a way that doesn't include someone bearing your blunt.

I suppose you might have meant brunt, but maybe not.
 
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