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Strategies & Market Trends : From the Trading Desk
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To: steve goldman who wrote (3789)11/5/1998 5:59:00 PM
From: GrnArrow  Read Replies (2) of 4969
 
Steve,

Here's another situation for you:

A stock is quoted 30 x 1/4, and prints are going off at 1/8 (this is all on NYSE). I see two possible explanations for this:
1) Either the specialist or someone in the crowd has an interest in buying (or selling) at that price, but doesn't want to reflect that interest in the quote, and is executing against contra orders coming in.
2) a buy and sell order comes in at virtually the same time and the specialist pairs them off. The more prints that go off at 1/8 the less likely this seems since it is unlikely buy and sell orders would repeatedly offset each other exactly.

Is there another explanation that I'm missing?

Now...let's say 1700 prints at 1/8, and the bid upticks to 1/8 size 800. Would it be reasonable to assume then that there was an unstated seller at 1/8 who was just cleaned up by a buy order for 2500 at 1/8 (the remainder of which then became the new bid)?

OK... One more question in this scenario: I'm seeing prints go off at 1/8 and I decide I want to buy there, so I enter a limit order for 1/8. If there is a seller there taking out buy orders as they come in, I should get filled at 1/8 right away. But if it has been a buyer taking out sell orders, my order would now enter the book as the best bid. Since my bid is posted for all to see, do I now have priority over the person in the crowd who has been buying? (I assume if it was the specialist buying, I get priority over him/her)

I appreciate any light you can shed.

Grn
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