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Strategies & Market Trends : From the Trading Desk
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To: bazooka who wrote (3992)12/18/1998 11:11:00 PM
From: Steven Bowen  Read Replies (1) of 4969
 
bazooka,

"are mms and/or specialists obligated to buy my contract at their quote"

I think the answer SHOULD be "yes, up to 10 contracts".

However,
I've gone round and round with E*Trade over this. Especially in thinnly traded options or LEAPs. I've tried to buy at the ask or sell at their bid and it doesn't happen. What they'll often do (if I'm buying) is put me on the bid (at the old ask price) and raise the ask. E*Trade always tells me; A quote on an option is just an indication of where the market may be. A market maker in an option is under no obligation to do a trade unless he can put both sides of a trade together.

I think it's a bunch of BS, but I've seen it happen over and over. So I'd also be interested in what Steve says an option MM is obligated to do.

Here's a couple responses I've received from E*Trade on this exact topic;

"Thank you for choosing E*TRADE.
I have checked Bloomberg for any activity for that contract and the system tells me the same as your findings, no trade activity. The question of why a listed price if no one really wants it is because the SEC regulations require us to list this price."

"Your order to sell your options at 8 was not filled because nobody wanted to buy your options. When trading options, unlike trading stock, you need to have both sides of the transaction. A customer must want to buy the option and another must want to sell the same option. In this case you were willing to sell the option but nobody wanted to buy. There is no market maker willing to buy and sell out of there own inventory. The bid and the asks are simply indications of interest in the market, but are not firm prices. Even if you had entered a market order your still might not have sold the options unless someone else was willing to buy them."

Steve, are they right, or did they flat out lie to me?

Steve
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