Trading Illiquid LEAPS @ mid

[atticus]

Quote from Options12:

I'm not clear on this. Are you saying that layering when trading options is not illegal, or that you know it is and just don't care?

I am making an analogy to a registered market maker who makes symmetric or asymmetric-markets inside NBBO and cancels one-side of his/her market once a fill is achieved. Happens literally each second of each trading day.

Do you typically answer a question with a question? Have you any proof of ANY action against an individual or firm who was charged with layering in options?

 

[nazzdack]

Quote from Options12:
----"turf-issue"....
----SEC regulations....
----manipulative trading....
----illegal activity.
----Traders placed a bona fide order....
----traders then immediately entered numerous non-bona fide orders....
----on the opposite side of the market....
----artificially improving or depressing the bid or ask price of the security.
----The nature of these non-bona fide orders....

The actual "nature" of those orders is that they are exposed to market risk. Each order, whether "bona fide" or "non-bona fide" seems an arbitrary, subjective and moot point.

 

[Options12]

Quote from atticus:

Do you typically answer a question with a question? Have you any proof of ANY action against an individual or firm who was charged with layering in options?

Atticus, until now you have not asked me a question.

But no, I have not researched enforcement actions against layering in options, so I don't know whether or not there are any. I did follow the Hold Brothers case, however, and believe that layering when trading options would be considered illegal. And I was curious to know if you thought otherwise.

 

[cdcaveman]

there are some interesting points in this article... everyone knows i have thoroughly read Taleb and Espen... but .. the part in this article about squeezes..

"DS: You left a job as the senior options at the Union Bank of Switzerland to go to Chicago and become a floor trader. Why did you leave Wall Street? What did you think you were missing by trading from a screen in New York?

NT: I left Wall Street for the first time in 1991. I was obsessed with price formation. I couldn't understand from the screen how prices were determined. It took me six months to be able to read prices in the pit. Locals basically read information from the order flow and squeezed the weak party. There's always a pack of five or six dominating locals who abruptly change the prices, who bid a lot higher than the previous offer and have the guts to do it, and the rest of them follow.

DS: How did that knowledge change the way you trade when you went back to trading from a screen?

NT: It is the most enriching experience for a trader. I learned more about market dynamics in my second six months than from years on a desk. I learned that traders' income is not the bid-offer spread, but the micro-squeezes that take place. Markets move from squeezes to squeezes. Traders make money on stop losses and other free options. It made me interested with information economics. "

http://www.derivativesstrategy.com/magazine/archive/1997/1296qa.asp

markets follow the path that hurts the highest number of dynamic hedgers.

 

[FrankSlaughtery]

Quote from Free Thinker:

isnt that a tad illegal? a few years ago i was doing the sit on the bid and the ask thing with two seperate accounts at ib and i got a phone call telling me to stop because it was illegal.

+1. i would strongly suggest not doing this. trying to manipulate prices (which is what you're doing if you're doing this) is the best way to rack up some face time with you're favorite uncle (uncle sam).

 

[Options12]

Quote from nazzdack:

The actual "nature" of those orders is that they are exposed to market risk. Each order, whether "bona fide" or "non-bona fide" seems an arbitrary, subjective and moot point.

But as Atticus noted, the scheme requires the use of two separate accounts in order to circumvent your brokers' internal compliance system. This fact makes the 'bona fide / non-bona fide' determination less subjective.

 

[atticus]

Quote from Options12:

But as Atticus noted, the scheme requires the use of two separate accounts in order to circumvent your brokers' internal compliance system. This fact makes the 'bona fide / non-bona fide' determination less subjective.

More BS.

You cannot make markets at retail. The regs are there to prevent it and to protect registered market makers. Retail had some concessions (SOES, RAES) in the past, but no longer.

 

[Options12]

Quote from atticus:

More BS.

You cannot make markets at retail. The regs are there to prevent it and to protect registered market makers. Retail had some concessions (SOES, RAES) in the past, but no longer.

Atticus, stay on topic. This thread has been about your advice to the OP on how to get a better price by layering orders.

Quote from atticus:

You could offer the option in one account to lower the mid, and then bid the same (in the intended production account) provided you're looking to buy.
------------
Degrees of legality?

It's a violation of OCC (and possibly SEC) but not illegal.
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To add; I've done it 1000x and never heard a word about it.
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lol so let them charge me if they can take time away from pron-viewing. I've admitted it, so act.

 

[atticus]

Quote from Options12:

Atticus, stay on topic. This thread has been about your advice to the OP on how to get a better price by layering orders.

YES, do it! You confirmed my statement that market-making is disallowed in retail accounts, and thus must be attempted (in abrogation of exchange rules, not law) in separate accounts.

Making a symmetric market, and layering in this example, are indistinguishable. Nazz stated it earlier that the trader is taking market risk in offering the LEAPS call; no distinction from a MMer offering a market. RMMs are not obligated to make symmetric markets beyond some small minimum (10-20 cars?).

Retail trading in exotic options are no longer allowed as the result of the lobbying efforts of the Chicago exchanges. Just another example of exchange turf wars and protectionism. The fact remains that RMMs are much greater violators than any retail "manipulator".

 

[cdcaveman]

Quote from atticus:

YES, do it! You confirmed my statement that market-making is disallowed in retail accounts, and thus must be attempted (in abrogation of exchange rules, not law) in separate accounts.

Making a symmetric market, and layering in this example, are indistinguishable. Nazz stated it earlier that the trader is taking market risk in offering the LEAPS call; no distinction from a MMer offering a market. RMMs are not obligated to make symmetric markets beyond some small minimum (10-20 cars?).

Retail trading in exotic options are no longer allowed as the result of the lobbying efforts of the Chicago exchanges. Just another example of exchange turf wars and protectionism. The fact remains that RMMs are much greater violators than any retail "manipulator".

i believe that!