One of the most important things to understand is the "market structure" and how it affects markets. There are new rules constantly being proposed by Exchanges and rubber stamped by the SEC. These rules often originate from the hft's and are "sold" to the regulator.
I believe one of the most important rule changes took place in the fall of 2019. It seemed like an innocent rule re "customer priority" but it really was a rule to help identify the "professionals" in the marketplace. Customer priority is a fallacy as there is virtually zero cust-cust trading for a variety of reasons.
As someone who has traded as both a regular customer and professional (currently), I can tell you that my orders are often ignored as a professional (by mm's and hft's) thus traders like myself can move the vol without even executing a trade (just bid it up or offer it down). I see this as a regular pattern as other professionals are facing the same problems.
If you care - read the following:
https://blog.themistrading.com/2019/09/the-saga-of-the-edgx-retail-priority-order/
key points here:
– the retail designation helps consumers of the Cboe proprietary data feed (primarily HFTs and market makers) to identify retail orders and decide if they want to trade with them.
– the retail designation enriches the content of the Cboe data feed which helps the exchange charge exorbitant rates for the data
So - the big boys are having a hard time finding liquidity - thus moving markets. Expect this trend to continue.
We are also seeing some crazy bid/ask spreads as the average bid-ask spread for the 1.2 million equity options (excl zero delta) is actually over $3.
I believe one of the most important rule changes took place in the fall of 2019. It seemed like an innocent rule re "customer priority" but it really was a rule to help identify the "professionals" in the marketplace. Customer priority is a fallacy as there is virtually zero cust-cust trading for a variety of reasons.
As someone who has traded as both a regular customer and professional (currently), I can tell you that my orders are often ignored as a professional (by mm's and hft's) thus traders like myself can move the vol without even executing a trade (just bid it up or offer it down). I see this as a regular pattern as other professionals are facing the same problems.
If you care - read the following:
https://blog.themistrading.com/2019/09/the-saga-of-the-edgx-retail-priority-order/
key points here:
– the retail designation helps consumers of the Cboe proprietary data feed (primarily HFTs and market makers) to identify retail orders and decide if they want to trade with them.
– the retail designation enriches the content of the Cboe data feed which helps the exchange charge exorbitant rates for the data
So - the big boys are having a hard time finding liquidity - thus moving markets. Expect this trend to continue.
We are also seeing some crazy bid/ask spreads as the average bid-ask spread for the 1.2 million equity options (excl zero delta) is actually over $3.