Unusual Execution Price for Options Combo Order

S

syahriltaher

Hi Everybody...


I am a new member here...Glad to be here to share experience with you all experienced traders...


I have been trading options and my broker is Interactive Brokers....

I have a question to ask you Guys regarding my trading experience yesterday...maybe you can share your knowledge here....


Yesterday (last Friday), I submitted limit order of 3.5 for 26 lots options combo AGG Dec 106/Aug 110 Diagonal (consists of Buying 26 lot AGG Dec 106 and Selling 26 lots AGG Aug 110).

Bid x Ask for AGG Dec 106 was 3.3 x 3.8
Bid x Ask for AGG Aug 110 was 0 x 0.10

Then the order was filled exactly as per the limit price of 3.5....exactly as per the limit price I set.

BUT when I checked the order detail, there is something wrong and strange.

The filled price for Buying AGG Dec 106 is 4.75 (eventhough the bid x ask = 3.3 x 3.8)

The filled price for Selling AGG Aug 110 is 1.25 (eventhough the bid x ask = 0 x 0.10)


Will this affect my next order when I will close the position?


Maybe this will not be problem if I close the combo simultaneously. But what if I am going to close only the AGG Aug 110, and then sell another options against the AGG Dec106?


I am afraid this will create problem


Thank you in advance for your help Guys...

Best Regards,

Syahril TAHER
 
I could be completely wrong here, but any chance when you are looking at the 'filled price' it is actually shown you the price including commissions ? (which, the bid x ask does not factor in).
 
Spread orders can touch the book or trade through - as long as the net spread is within the limit. It creates the problem you describe. Tough to avoid without trading the individual legs as an entry. You'll probably not want to leg out for the exit.
 
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The individual prices that you were filled at are meaningless, just the total net debit or credit is important. Will have no bearing at all on the unwinding of the trade in the future.

The reason this happens is because there are so many different exchanges. You may see a market of 3.30-3.80. This is the compilation of the best bid and lowest offer on all the exchanges. Your spread order was filled on an exchange with a much wider quoted market. For example say it was sent the Amex exchange and their market was 2.00-6.00 on one option and 0-1.00 on the other. Their COB (complex order book) would simply look at that exchanges prices when coming up with prices for the individual legs. You wouldn't be able to trade through prices on that exchange, but on a spread you could trade through prices on other exchanges.
 
FSU said:
The individual prices that you were filled at are meaningless, just the total net debit or credit is important. Will have no bearing at all on the unwinding of the trade in the future.

The reason this happens is because there are so many different exchanges. You may see a market of 3.30-3.80. This is the compilation of the best bid and lowest offer on all the exchanges.
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In agreement with FSU here. In addition to exchange selection, the individual prices of the legs could also vary based on your order type (RELative orders, best rebate etc), order complexity (ratio'ed spreads) and liquidity. In my observation, the more illiquid a market, the worse this discrepancy becomes. Since you have a 50c bid/ask spread on a $3.45 option

If you plan to leg out as opposed to close the option as a combo, just mind your prices or go back and adjust the price to their midpoint on the account window of TWS/IB, so your P/L are properly accounted for.
 
InTheMaking said:
In agreement with FSU here. In addition to exchange selection, the individual prices of the legs could also vary based on your order type (RELative orders, best rebate etc), order complexity (ratio'ed spreads) and liquidity. In my observation, the more illiquid a market, the worse this discrepancy becomes. Since you have a 50c bid/ask spread on a $3.45 option

If you plan to leg out as opposed to close the option as a combo, just mind your prices or go back and adjust the price to their midpoint on the account window of TWS/IB, so your P/L are properly accounted for.
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The P/L shown on the TWS is correct....no problem...

My question, if I want to leg out individual leg, I put limit order based on bid price x ask price of each individual leg?

Thanks for the responds ....

Regards,

Syahril
 
syahriltaher said:
The P/L shown on the TWS is correct....no problem...

My question, if I want to leg out individual leg, I put limit order based on bid price x ask price of each individual leg?

Thanks for the responds ....

Regards,

Syahril
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I would recommend against legging out of this spread. You will get a much better fill if you enter the order as a spread. Market makers will require less of an edge. Simply put the order in as a spread a bit away from where you want to be filled, and then raise the price until you are filled. You will give up the least edge this way.

I would also recommend you direct the order to the CBOE. I have found that their cob book will give the best fills.
 
FSU said:
I would also recommend you direct the order to the CBOE. I have found that their cob book will give the best fills.
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Are you with IB? If so, are you better off after paying the increased comms when direct routing to CBOE over using SMART combo?
 
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