Price discovery on wider option spreads

S

smile

I'm an options newbie and am wondering how folks get decent prices.

Is it usually possible to split the spread halfway and get a fill within seconds? What volume is enough for a quick fill splitting the spread?

If folks have a large order... say 50 contracts and up, do they typically test the current spread with 1 contract test trades to see how good a price they can get before putting in an order for the full much larger order?

Many thanks for any help!
 
Quote from smile:


If folks have a large order... say 50 contracts and up, do they typically test the current spread with 1 contract test trades to see how good a price they can get before putting in an order for the full much larger order?
More...

What would be the point of doing that? If the market is .60 bid at .70, and you want to pay .65 for 50 contracts, it seems to me your best bet is to simply put in a bid of .65 for 50. Once you put in your bid for 50, you're first in line to get them if in fact somebody IS willing to sell at .65.

If you put in a bid of .65 for 1 contract and you get hit - now you've alerted the whole world that somebody's willing to sell at .65. Somebody else may get them before you can put in your bid for the other 49 contracts.

Keep in mind that if you're thinking about paying .65, there may well be others out there toying with the idea of doing the same thing. Your 1-lot trade may make ten guys decide to pull the trigger on that same trade. So you don't want to advertise your intentions. When ten guys are thinking about buying, you want to be the first to yell "sold," and leave everyone else thinking "dammit, I shoulda done that trade."
 
Or simply buy in two+ lots and try to bring your average to .65 ; If I really want a fill, I'll try to buy half lot near ask and other half near bid. If I'm near swing high or low; my other half would never get a fill. But that is better than no fill at all.
 
50 lot is pretty tiny in fact it qualifies for NBBO so anytime you post a bid or offer for 50 as long as its not AON if you've imporved the bid or offer you'll be the first one to get fill when/if they trade there.
 
Many thanks for the insights.

Is there something important about the 50 contract size regarding getting NBBO?
Can I get NBBO with 1or 2 contracts?
Please clarify.
Do I generally get better fills with size at or above 50 lots ?
Please clarify.
 
Quote from TraderSU:

Or simply buy in two+ lots and try to bring your average to .65 ; If I really want a fill, I'll try to buy half lot near ask and other half near bid. If I'm near swing high or low; my other half would never get a fill. But that is better than no fill at all.
More...

How do you buy a half lot ? :confused:
 
Quote from dmo:

What would be the point of doing that? If the market is .60 bid at .70, and you want to pay .65 for 50 contracts, it seems to me your best bet is to simply put in a bid of .65 for 50. Once you put in your bid for 50, you're first in line to get them if in fact somebody IS willing to sell at .65.

If you put in a bid of .65 for 1 contract and you get hit - now you've alerted the whole world that somebody's willing to sell at .65. Somebody else may get them before you can put in your bid for the other 49 contracts.

Keep in mind that if you're thinking about paying .65, there may well be others out there toying with the idea of doing the same thing. Your 1-lot trade may make ten guys decide to pull the trigger on that same trade. So you don't want to advertise your intentions. When ten guys are thinking about buying, you want to be the first to yell "sold," and leave everyone else thinking "dammit, I shoulda done that trade."
More...

Once 0.65 bid is hit, the new bid/ask becomes 0.65 x 0.7
 
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