Why are there illegal option orders in the orderbook?

[earth_imperator]

This corrupt system allows also paying and receiving bribes and ransom payments fully "legally", via such "fake" orders...
With plausible deniability guarantee...
B/c nobody else would react to such an order but the involved two...
An El Dorado for the organized crime world...

 

[traider]

There was another guy who discovered this fraud. He created the FairPut pricer
Before he could start market making he was arrested by the CIA
You can look up his old work here

 

[MrMuppet]

this entire thread is a shitshow

 

[newwurldmn]

There was another guy who discovered this fraud. He created the FairPut pricer
Before he could start market making he was arrested by the CIA
You can look up his old work here

Last I heard, he was transferred to a secret jail under the ocean that is jointly run by Citadel and DE Shaw.

 

[2rosy]

Maybe someone is buying at fair value and then marks positions to market given that high offer. Bonus time comes he gets $$.

 

[vanzandt]

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...

.

Not true. IV is calculated using the "marketprice" of an instrument by inserting the last trade price into Black-Scholles and back-solving the equation for IV.

"Marketprice" is NOT the halfway point between the b/a spread. It is defined as the most recent trade price.

Those way off quotes you seeing are out there all the time. That's just the way the stuff works. There's no human behind the curtain trying to game you.

 

[spy]

There's no human behind the curtain trying to game you.

Of course there's a human behind the curtain trying to game you.

Trust no one, ever!

 

[newwurldmn]

Not true. IV is calculated using the "marketprice" of an instrument by inserting the last trade price into Black-Scholles and back-solving the equation for IV.

"Marketprice" is NOT the halfway point between the b/a spread. It is defined as the most recent trade price.

Those way off quotes you seeing are out there all the time. That's just the way the stuff works. There's no human behind the curtain trying to game you.

This isn’t true. Last trade price can be a long time ago at a very different spot reference. Standard practice is to use current mid with current mid spot ref.

 

[vanzandt]

This isn’t true. Last trade price can be a long time ago at a very different spot reference. Standard practice is to use current mid with current mid spot ref.

Implied Volatility Inputs
Implied volatility is not directly observable, so it needs to be solved using the five other inputs of the Black-Scholes model, which are:

• The market price of the option.
• The underlying stock price.
• The strike price.
• The time to expiration.
• The risk-free interest rate.

What Is Market Price?
The market price is the current price at which an asset or service can be bought or sold. The market price of an asset or service is determined by the forces of supply and demand. The price at which quantity supplied equals quantity demanded is the market price.

What Is Current Price?
The current price is the most recent selling price of a stock, currency, commodity, or precious metal that is traded on an exchange and is the most reliable indicator of that security's present value.

 

[newwurldmn]

Implied Volatility Inputs
Implied volatility is not directly observable, so it needs to be solved using the five other inputs of the Black-Scholes model, which are:

• The market price of the option.
• The underlying stock price.
• The strike price.
• The time to expiration.
• The risk-free interest rate.

What Is Market Price?
The market price is the current price at which an asset or service can be bought or sold. The market price of an asset or service is determined by the forces of supply and demand. The price at which quantity supplied equals quantity demanded is the market price.

What Is Current Price?
The current price is the most recent selling price of a stock, currency, commodity, or precious metal that is traded on an exchange and is the most reliable indicator of that security's present value.

no one uses last trade for the options. In liquid names we will use last trade for the underlying because of ease. In illiquid names you will use current mid.