Why are there illegal option orders in the orderbook?

I don't have the knowledge to know that as a fact.
By using common sense, I guess anyone, if the volume is lacking on that particular strike and stock.

Let's say nobody is trading that put, and a market maker, or a trader, writes one for an inflated price.
I don't see anything wrong with it. It probably won't get filled, unless a noob comes by and hit the ask.

I think that if you try to sell that put for, let's say 3$, you might see the ask going down from 5 to 3. And obviously won't get filled, unless someone is throwing money away.

No fraud.
 
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cesfx said:
I don't have the knowledge to know that as a fact.
By using common sense, I guess anyone, if the volume is lacking on that particular strike and stock.

Let's say nobody is trading that put, and a market maker, or a trader, writes one for an inflated price.
I don't see anything wrong with it. It probably won't get filled, unless a noob comes by and hit the ask.

I think that if you try to sell that put for, let's say 3$, you might see the ask going down from 5 to 3. And obviously won't get filled, unless someone is throwing money away.

No fraud.
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IMO it's very well a fraud to also manipulate (inflate) the IVs...
 
earth_imperator said:
The question is about how and why the $5 was accepted into the orderbook.
Who is allowed to place such a sell order with a price above the Put strike?
Why does the marketplace accept & tolerate such clearly fraudulent orders?
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It’s not a fraud. An option can be any price. At some prices it’s arbitrageable.

The market makers have an obligation to show a two sided quote that is at least 5 dollars wide.

You are welcome to represent a lower offer if you want.
 
newwurldmn said:
It’s not a fraud. An option can be any price. At some prices it’s arbitrageable.
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I doubt. Give a proof example.

The market makers have an obligation to show a two sided quote that is at least 5 dollars wide.
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Do you have a reference for this claim?

You are welcome to represent a lower offer if you want.
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The MMs and their patrons have a method to manipulate the IVs, and with it all the margin requirements for the traders...
What a corrupt system...
 
earth_imperator said:
I doubt. Give a proof example.


Do you have a reference for this claim?


The MMs and their patrons have a method to manipulate the IVs, and with it all the margin requirements for the traders...
What a corrupt system...
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1. Two people can trade an option on any price they want. It doesn't have to be non-arbitrageable nor does it have to fit some implied vol calculation or black scholes model.

2. I do, but i'm not going to dig it up. You can look for it online if you want. But notice how many illiquid options have bid ask spreads of 4.9. it's not a coincidence.

3. If you believe that, you don't understand how volatility trading works.
 
Here's some C++ code that returns the valid min and max premiums for the specified parameters.
Works both for Call and Put options.
If you see quotes outside these limits, then be alerted about fraudulent quotes...
Code: 
struct MinMax_t
  {
    double Min, Max;
    MinMax_t(const double AMin, const double AMax)
     : Min(AMin), Max(AMax) {}
  };

MinMax_t get_min_max_premium(const bool fCall, const double UnderlyingSpot, const double Strike)
  {
    return MinMax_t(max(0.0, fCall ? UnderlyingSpot - Strike : Strike - UnderlyingSpot),
                    fCall ? UnderlyingSpot : Strike);
  }

Ie. calling the above function like this:
...
MinMax_t MM = get_min_max_premium(fCall, UnderlyingSpot, Strike);
...
Ie. the result is in the structure MM...
 
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earth_imperator said:
An option can never have a premium that is higher than the strike.
But with some tickers/symbols the orderbook clearly contains some Ask prices that are higher than the strike, for example strike is 2 and Ask is 5.
How come? Who can place such offers? B/c I cannot as my broker's system gives an error when trying to place such an order.

These illegal prices are also a problem for IV calculations: it wrongly increases the IV since IV usually is calculated from MidPrice between Bid and Ask...

I experience and observe such buggy option data even in broker-official "current" data received via broker-API.

Update: above I mean Put options.
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Is this some clown shit troll post????

If you want to sell a put struck at 5$ for 6$, well, go ahead and type in that order. Unless you're a market maker obliged to fulfill min spreads and quote uptime, you can do whatever you want.

If the other guy does that trade with you he's an idiot but there is nothing illegal involved.
And spare me with that BSM bullshit. The formula is a framework to put options quotes into perspective and not some magic that a bunch of scientists discovered to be the be all end all for an options price.

My guess is that you've been fleeced lately and now you're looking for an excuse
 
I'm angry b/c scanner results based on IV include also such buggy results caused by such buggy quotes.
As well sorted IV lists with such buggy IVs caused by such buggy quotes.

It's MM fraud, gangsters they are!

Fixing these bugs means to fix Bid, Ask, as well IV. It all takes extra computing time, and in case of finding the new IV it's very costly as this can be done only iteratively.
 
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