When is too many options, too many?

HappyTrader said:
I occasionally play around with options on equities, usually highly liquid stocks (i.e., Facebook, Google, etc.). I purchase and hold for usually a week to a couple of months (not day trading).

When trading 1, 5, even 10 options... it's not a significant issue. But as I trade more and more options, I'm starting to be curious if there is a point that I need to change 'how' I trade?

For example, I was looking at a volume chart on options that traded during the week, and volume is relatively low (averaging 5 on a trade, maybe 40 a day). Except when I did a single trade of 50 options, there is a rather large spike. Such that I can actually see my own personal trade on a volume chart, as it stands out significantly.

To make things more interesting, it seems I'm the majority of open interest on that specific option.

So far, not a big issue.. but as I move to larger purchases (100, 1000, etc.) do I need to change HOW I trade these options? Some of my concerns:

1) Will I personally exhaust liquidity on the option if my trade is 100x the average trade?
2) Will I inadvertently effect the price due to the larger purchases?
3) Am I going to end up being flagged on CNBC by the Najarian brothers who think I actually know what I'm doing?

I am unaware exactly how I can change my trading mechanism. I do not mean making multiple purchases of smaller lots, but do concepts exist for options such as:

1) Blocktrades?
2) Darkpools?
3) Something else?

Or should I just not even consider executing trades where I end up being 99% of open interest?

Any ideas/feedback/suggestions would be greatly appreciated!

Thank you!
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unless you day trading over 2k contracts in an illiquid instrument you should be good
 
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rber said:
unless you day trading over 2k contracts in an illiquid instrument you should be good
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2k contracts is massive, at least for the average retail individual. -- If you traded that size consistently for a month or two or three or four...you could retire...assuming those are winning trades.

You're from Albuquerque, New Mexico...home of Breaking Bad, Walter White...Heisenberg...Time to Cook, o_O
That TV drama show started right around when I started trading,
 
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Thank you all for the feedback. It sounds like it's not an issue at low volume of 100. But what happens once volume reaches 1000 or 10,000, or 100,000?

At what point filling in an order in a retail broker trading platform is not going to be sufficient anymore, and a different order type is needed (or different brokerage?)
 
Retail is built for a 10 up market on most of the venues. The quest becomes how to use multiple list to my advantage and is my broker enabled to access that liquidity. Liquidity has a price - how can I play it to my best interest and least friction.
 
ajacobson said:
"Me? Perhaps 5-10% of that at most. Are you telling me is if I trade over 100, I should talk to my broker?"

Hypothetically yes if you having a challenge sourcing liquidity, but it only hypothetical.
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Since my trades were mostly on illiquid instruments, liquidity is a problem. For example, on one position, I am still unable to exit because of no counter parties willing to trade. The bid was $0.0, bid size = 0!
 
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ironchef said:
Since my trades were mostly on illiquid instruments, liquidity is a problem. For example, on one position, I am still unable to exit because of no counter parties willing to trade. The bid was $0.0, bid size = 0!
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just because there are no bids doesn't mean there is no liquidity, it just depends on if you are in the money or not, if you are ITM, try placing a limit order, of-course you have to roughly know the option value. Have traded a lot of those positions where there are no bids/no volume or open interest but there are always some hidden bids as long as you ITM.
 
"Since my trades were mostly on illiquid instruments, liquidity is a problem."

I'm going to have that made into a desk plaque !
 
rber said:
just because there are no bids doesn't mean there is no liquidity, it just depends on if you are in the money or not, if you are ITM, try placing a limit order, of-course you have to roughly know the option value. Have traded a lot of those positions where there are no bids/no volume or open interest but there are always some hidden bids as long as you ITM.
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Yes, if they are ITM I can always offer slightly less than intrinsic value and get a scalper to bid and gets his risk free return. But they were OTM turned into DOTM with short expiration.:(
 
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