What 6,932 Busted Option Trades In 13 Minutes Looks Like
- Thread starter Banjo
- Start date
This happens fairly regularly.
The exchanges have standard rules for busting and adjusting trades.
For example, you buy the 20 strike spy put for a nickel. The 100 strike is also trading for a nickel- no one would buy a 20 strike for the same price as a 100 strike. Your trade would be busted.
If one guy got all those busted, rest assured he's lost a lot of money today and possibly someone's been fired.
EDIT: It looks like it might be an exchange related bug. The NYSE-Arca is shutting down it's complex order book until further notice.
The exchanges have standard rules for busting and adjusting trades.
For example, you buy the 20 strike spy put for a nickel. The 100 strike is also trading for a nickel- no one would buy a 20 strike for the same price as a 100 strike. Your trade would be busted.
If one guy got all those busted, rest assured he's lost a lot of money today and possibly someone's been fired.
EDIT: It looks like it might be an exchange related bug. The NYSE-Arca is shutting down it's complex order book until further notice.
Funny you should mention this example. Trading SPX weeklys Friday. With the SPX at around 1880, all the puts expiring that day below 1840 were at .05, yet there were customers buying puts for a nickel all the way down to the 1690's. Yes they could have bought the 1840 puts, but they bought the 1690's. This happens every expiration. Probably 10,000 of these options trade (all different strikes).
Under the obvious error rule, the customer would have the option of busting them within a certain amount of time. Even though I sell them every week, I have never had a trade busted until last Friday.
I had the misfortune of being part of 6 of those 6,932 trades. I offered several AMZN combos right after the open at sufficient edge loss that I expected to be filled almost instantly, and I was. Unfortunately, IB Smart routed to PSE, and my sell limit orders executed far below my limit price (SELL LMT at 58.6 executed at 53.85; SELL LMT at 11.76 executed at 11.05), turning what would have been a nice profit into a loss of 4% on account. After being in limbo all day, I learn that the trades will be busted and the positions I had closed will be added back into my account tonight. Unfortunately, since I successfully closed the remainder of my AMZN position at other exchanges at the same time, I'm left with an unhedged, long vega / short theta mess that's almost guaranteed to lose money when I can finally close it--for real I hope--at tomorrow's open.
Although IB has been very helpful to the extent they can do anything, I always thought that the commissions we pay to the exchanges are designed to insure against errors they make like this, but I guess not. Heads I win, tails you lose. But at least Mary Jo White assures us that the markets aren't rigged.
Sorry to gripe but this has been immensely frustrating. If anyone knows of any recourse I might have, please let me know.
Although IB has been very helpful to the extent they can do anything, I always thought that the commissions we pay to the exchanges are designed to insure against errors they make like this, but I guess not. Heads I win, tails you lose. But at least Mary Jo White assures us that the markets aren't rigged.
Sorry to gripe but this has been immensely frustrating. If anyone knows of any recourse I might have, please let me know.
I had an order involved in this as well. I am surprised that the exchange took so long to decide to break the trades. These occurred right after the open. I was originally told the trades would stand and that I should manage the risk accordingly. I did not find out that the trades would be broken until after the market closed.
Unfortunately none.
You are a casualty of the obvious error rule.
It's one of the problems with the rule.
I've been on both sides and its not pleasant for anyone.
Edit: you put a sell limit for 58.6 and they filled you at 53.6?
They violated your instructions. Read the ib terms. You prob should have waited as you would have gotten an adjustment or a busted trade regardless of the obvious error.
Thanks, new, that is exceedingly helpful. Knowing this, I will definitely handle the situation differently, and much less passively from a risk standpoint, the next time something like this happens.
I've argued with my broker when I got shit fills - fills that no one could even argue were unreasonable (not even debatable - bid is 10,000 up and you trade below the bid on a 200 lot).
More often than not, I get an adjustment.