When is options scalping manipulative trading?

I am intrigued by your method.

I am also afraid I might be using the same broker, when you say that you used them for long time and they are not answering your specific questions.
There is one, famous for its funny customer service. But I won't guess shame.


arizonadreamer said:
Good Afternoon ET -

I have come to realize that with the appearance of "manipulative trading," we are not innocent until proven guilty. In fact, we are not even guilty until proven innocent. We are guilty if we "seem to be guilty" and could get our accounts restricted and ultimately zapped!

I wish I could say I am asking for a "friend" but it is for me. :) My broker (to remain unnamed) is not answering my specific questions, so here I am. Simply put, after decades of options trading, my faux pas for this strike is trading thinly traded options in a manner that appears to be taking advantage of liquidity and price improvements.

The underlying (to remain unnamed) in question trades in the millions and the at the money options usually have volume in the hundreds. The out of the money options have less volume and usually have a 5 or 6 cent spread such as .06 x .11 or so. You get the idea - buy at .07 and sell at .08, .09, or even .10. Or sell at .10 and buy back at .09, .08, or even .07. It didn't always work but it often did. Timeframe for entering and exiting was often under a minute (as was for other underlyings that were never an issue.)

I am at a loss (no pun intended :) trying to figure this out on my own. This happened a few months ago and I haven't really scalped anything since because I just don't know what will trigger the next fateful strike. For all I know, I could see an SPX option quoted at .70 x .95, buy a couple of contracts at .80 at put in a sell order at .90 and have it fill seconds later and get my account terminated for taking advantage of liquidity. (unlikely to get good fills on SPX these days though.) Remember, we don't even have to be guilty; we just have to appear guilty.

Are there any options scalpers out there who have experienced this? Maybe there is a link to this rule (with details) somewhere? How can I get back into options scalping without wondering and worrying when the next fatal flag will be coming my way? I will never scalp that particular underlying's options again, but it seems like at any given time, any one of my 1000s of monthly trades will be the fatal one. Looking into eggshell futures. :)

Thanks!

AZD
More...
 
As with these types of posts the information is super unclear.

is your broker giving you a problem?



arizonadreamer said:
Good Afternoon ET -

I have come to realize that with the appearance of "manipulative trading," we are not innocent until proven guilty. In fact, we are not even guilty until proven innocent. We are guilty if we "seem to be guilty" and could get our accounts restricted and ultimately zapped!

I wish I could say I am asking for a "friend" but it is for me. :) My broker (to remain unnamed) is not answering my specific questions, so here I am. Simply put, after decades of options trading, my faux pas for this strike is trading thinly traded options in a manner that appears to be taking advantage of liquidity and price improvements.

The underlying (to remain unnamed) in question trades in the millions and the at the money options usually have volume in the hundreds. The out of the money options have less volume and usually have a 5 or 6 cent spread such as .06 x .11 or so. You get the idea - buy at .07 and sell at .08, .09, or even .10. Or sell at .10 and buy back at .09, .08, or even .07. It didn't always work but it often did. Timeframe for entering and exiting was often under a minute (as was for other underlyings that were never an issue.)

I am at a loss (no pun intended :) trying to figure this out on my own. This happened a few months ago and I haven't really scalped anything since because I just don't know what will trigger the next fateful strike. For all I know, I could see an SPX option quoted at .70 x .95, buy a couple of contracts at .80 at put in a sell order at .90 and have it fill seconds later and get my account terminated for taking advantage of liquidity. (unlikely to get good fills on SPX these days though.) Remember, we don't even have to be guilty; we just have to appear guilty.

Are there any options scalpers out there who have experienced this? Maybe there is a link to this rule (with details) somewhere? How can I get back into options scalping without wondering and worrying when the next fatal flag will be coming my way? I will never scalp that particular underlying's options again, but it seems like at any given time, any one of my 1000s of monthly trades will be the fatal one. Looking into eggshell futures. :)

Thanks!

AZD
More...
 
Stochastix: The only thing they offered was the text I posted. I will keep in mind the FINRA question if I reinitiate discussion on this with them.



ETJ: Do you have a link to the details regarding this derived order rule? All the major exchanges are quoting these contracts.



MW: Yes, it seems I did provide liquidity. Perhaps this is the issue. Maybe the market makers complained to my broker that I was cutting in on their business? All of those small trades add up.



Vanzandt: Good perspective. They have received an unbelievable amount in commissions from me. Good point about keeping the account open if I switch brokers.



Rbigsby: The at the money and near the money strikes had volume. These had little volume and I accounted for more than half of that volume. I don’t know who was at the opposite side of the trades. Maybe bots?



The Dawn: Stay tuned. For now, all I can say is that it is not one of the smaller outfits out there.



Earth_imperator: That’s what I thought but I was informed that this particular way of trading (going in and out of a static spread) could be seen as taking advantage of liquidity and price improvement.



Cesfx: Yes, don’t guess but stay tuned. :) Customer service is usually good but when it comes to this topic they are very cryptic. Hence, the reason I have come out of my 10+ year hibernation from Elite Trader to try to get some answers.



Newwurldmn: I thought I was fairly clear and would need specific questions to clear up wasn’t clear. :) Yes, it is a problem because I don’t know what I need to do to avoid this situation in the future.
 
I understand you don't want to tell us who is the broker. I understand you don't want to mention the option you were scalping. But please tell us *exactly* what your broker told you. Otherwise it is a complete waste of time.
 
Arturo100:

I thought I was clear but for clarification, here you go:

"The above account is trading thinly traded options in a manner that could be viewed as taking advantage of liquidity and price improvements. The client needs to modify their trading behavior to not have the appearance of taking advantage of liquidity / price improvements."

I was merely entering my orders within the spread with at very high success rate for this particular underlying. I had done the same for other underlyings countless times with no issues.
 
arizonadreamer said:
Arturo100:

I thought I was clear but for clarification, here you go:

"The above account is trading thinly traded options in a manner that could be viewed as taking advantage of liquidity and price improvements. The client needs to modify their trading behavior to not have the appearance of taking advantage of liquidity / price improvements."

I was merely entering my orders within the spread with at very high success rate for this particular underlying. I had done the same for other underlyings countless times with no issues.
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It's the thin market that's the issue I'm guessing.
 
Well, the at the money'ish contracts had volume in the thousands today and OTMs had volume in excess of 500, all within a spread differential between the bid and ask of 5 or 6 cents. Where is the "thinness" and how do you determine what is thin and what is not? It's not like Autozone (AZO) at .0 x 4.80. If they can say this is "thinly traded" then anything can be called thinly traded. Kind of like holding calls in the NFL. :) And even if true, what specific rule would this violate?
 
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