options volume

T

Tom.Leverage

Hi,

As you know much of the option trades are made by anonymous parties. I would like some insight into who these buyers and sellers are? Mostly speculators or investors trying to hedge exposure in the stock market? Is the daily options volume for a stock generally divided between the same traders, or are there a high variety of people taking these trades? I'm interested in the trades made on option contracts on underlying stocks from the major indices, Nasdaq100, S&P500 or DJIA.

// Tom.Leverage
 
It's anyone and everyone, basically -- who cares who's specifically behind the other side of the trade o_O
You'll never truly know if those are speculators and/or hedgers.

That's kind of like running a supermarket or pet store...and asking if the buyer of a fish or puppy...plans to f*ck it... (it's none of their business)
or bake it, or fry it, or bbq it...
 
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Our ex-MM sponsor is probably enjoying his weekend. Here is how I see it:

With equity options, you won't be able to tell. There are various routes, pools, and exchanges. It is a highly fragmented market. You do, however, see blocks which might as well be institutional.

I know brokers aggregate stock orders from a single firm, but somehow I don't think they do it for options....

In futures options, it was simply called the "upstairs" and "downstairs" guys. With the closure of the pits, everybody is upstairs.
 
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Tom.Leverage said:
Hi,

As you know much of the option trades are made by anonymous parties. I would like some insight into who these buyers and sellers are? Mostly speculators or investors trying to hedge exposure in the stock market? Is the daily options volume for a stock generally divided between the same traders, or are there a high variety of people taking these trades? I'm interested in the trades made on option contracts on underlying stocks from the major indices, Nasdaq100, S&P500 or DJIA.

// Tom.Leverage
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Why does it matter? Perhaps you could fill us in, or is this just a random question to generate replies?



:)
 
Tom.Leverage said:
No former market maker here with some insight please?
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I don't think even the exchanges know the answer to that question. I left the AMEX floor back in early 2010. What I can tell you from back then, is that I got an estimate that 75% of transactions were crossed.(We don't have the Index products you are asking about) Let's call those institutional. Not possible to determine what percentage of those were speculative or hedging a current position, or what they did with that trade after. Many of those spreads include "risk-less" transactions like reversals/conversions and dividend spreads.

If you are looking to "read the tape" and filter for directional volume from "smart money", you might need a CBOE floor or off floor option broker to provide that information. I've never found value in that information.
 
But assuming the institution did the cross trade for themselves and not between two clients, what would be the purpose? You just buy from yourself then something you already had, right?
 
The trade starts with a client order, then the broker looks for liquidity and charges both side a commission.
 
Tom.Leverage said:
Hi,

As you know much of the option trades are made by anonymous parties. I would like some insight into who these buyers and sellers are? Mostly speculators or investors trying to hedge exposure in the stock market? Is the daily options volume for a stock generally divided between the same traders, or are there a high variety of people taking these trades? I'm interested in the trades made on option contracts on underlying stocks from the major indices, Nasdaq100, S&P500 or DJIA.

// Tom.Leverage
More...
It is good to know how option market works but don't try to spend much time to figure out who is trading. It wont give you any edge. If you know that, then you may want to know why he did that and most of the times an option trade is linked to other option trades and other stock trades. It may be a covered trade, uncovered trade, arbitrage,.... and Most of the times big option players lose big too (money wise and not the size wise of their account). If someone asks me "Do you want to know who is trading SPY option trades?" I will tell him no I don't want to collect useless info. Get out of my face and don't distract me " :oops:
 
rmorse said:
What I can tell you from back then, is that I got an estimate that 75% of transactions were crossed.(We don't have the Index products you are asking about) Let's call those institutional.
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May I ask what is "crossed" transactions?
 
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