Why are there illegal option orders in the orderbook?

[spy]

when Apple trades pennies why bother with wide spreads?

Presumably because that's where people think there's a bigger information asymmetry and more profit to be made by fishing in the middle. But, as seems to be the point of the entire thread, there are just some "dumb default" bid/asks which can be made to rest in the order-book for the sake of making a market... not a great market, but a market nonetheless. Therefore, in these cases, it may not be wise to cross the spread without a fair amount of due diligence.

 

[earth_imperator]

I know earth... but I'm pointing out that there's a contradiction in your thinking overall. If there's nothing wrong with what you suggest, why would there be anything "illegal" about the bid/ask spread?

That said, I think it may just be that English isn't your native language. Perhaps the thread should have been titled something like "Why are there peculiar or nonsensical bid/asks in the order book" instead? There's nothing illegal about them.

I admit it could indeed be a language issue.

But take a look for example at the first row of the above table:

FAZE_051923P5       DTE=14  US=0.4999   K=5.00   L=4.60   B=4.5001  + A=4.8142  - IV=1061.9354- OB=4.20   OA=6.40   OIV=1494.34  ...

With Put options the max possible premium is the strike price. But take a look at the above sell order (Ask side): the original Ask ($6.40) is way higher than the strike ($5.00). After recalculating it should not be higher than 4.8142 (when counting also the other factors like current Spot, DTE etc.)

Do you find this ethical? IMO it's an attempt to fraud the buyers. And who does this? Usually the MM gangstas themselves! B/c normal retail traders cannot place such Put sell orders where the sell price is > strike... I just hope that you now understand the problem...

 

[spy]

Do you find this ethical? IMO it's an attempt to fraud the buyers.

I've seen this confusion a million times. IMHO it's caused by subscribing to the labor theory of value instead of the (better suited) subjective theory of value.

 

[earth_imperator]

I've seen this confusion a million times. IMHO it's caused by subscribing to the labor theory of value instead of the (better suited) subjective theory of value.

Stop talking non-related BS. Just concentrate on the issue. Otherwise admit that it's you who does not grasp this problem.

 

[spy]

Stop talking non-related BS. Just concentrate on the issue. Otherwise admit that it's you who does not grasp this problem.

I guess we'll have to agree to disagree earth. It's you who doesn't understand that if two parties both agree to a trade willingly... then there is no fraud. Before that, whatever the bid/ask, it's just a negotiation.

 

[earth_imperator]

I guess we'll have to agree to disagree earth. It's you who doesn't understand that if two parties both agree to a trade willingly... then there is no fraud.

Then give the definition of fraud. Can you?
I's obvious that a fraud is very well attempted by the seller, the MM.

And it has much more implications beyond the 2 parties: the margin requirements for current holders get astronomical to force them to get margin calls and quit their positions with big losses... The MM gangstas are doing this b/c they can do such things which retail traders are not allowed to do...
IMO the current human-based MM system is a highly corrupt system and needs to be overtaken by the machines...

 

[spy]

Then give the definition of fraud. Can you?
I's obvious that a fraud is very well attempted by the seller, the MM.

Just go to the dictionary... most definitions will start with something like "intentional perversion of truth in order to ___".

Unfortunately, in the subjective theory of value, there is no "true" price.

So, if you think there is a "fraud" in your mind... then just don't bother participating in the deal. Problem solved.

The point being, this model explains reality better than the labor theory of value... which claims the "true" price is the sum of the prices of the labor needed to create something.

But how on earth can you put a price on someone else's creativity or desire? You need to account for the fact that "beauty is in the eye of the beholder"; value is subjective.

And, therefore, the final price someone is willing to pay for an option (or anything else) depends heavily on many factors, not just the parameters of some formula. The formulas (e.g. Black-Scholes) are good tools... but not the final measure.

Doesn't this make more sense than thinking there's a giant market maker conspiracy of some kind?

 

[earth_imperator]

Unfortunately, in the subjective theory of value, there is no "true" price.

Wrong! Surely there is a true price!
Just show me an option pricing model that replicates the said (buggy) price. I'm sure you can't.
And this means there is a clear limit where the price becomes wrong/illegal, and therefore fraudulent.
And exactly that is the issue here. Q.E.D.

 

[spy]

#####

Wrong! Surely there is a true price!
Just show me an option pricing model that replicates the said (buggy) price. I'm sure you can't.
And this means there is a clear limit where the price becomes wrong/illegal, and therefore fraudulent.
And exactly that is the issue here. Q.E.D.

Lol, ok... you are entitled to your opinion.

 

[earth_imperator]

Just for the record:
The off-topic and discriminatory postings of @newwurldmn have been removed from the thread. Thx mod!