Dear Les, I'm sorry I didn't respond to you sooner, I have been on the road conducting options seminars.
Before I respond I would like to clarify one point in your note. You said in your note that you called your broker and was told that "the dealer MAY have made a mistake and not posted mine up for sale at $6.75". I am not clear what you mean by "posted". If you mean the broker did not enter the order, then this is an entirely different question that you would resolve with your broker. If the broker entered the order, then it should have been sent to the floor for entry into the order book.
Your question relates to two things, the role and responsibilities of option Specialists, and market mechanics. An option Specialist is a trader on the floor who provides market depth, liquidity, and a fair and orderly market. It is the Specialist who posts the bid and ask price. The bid and ask may be improved by any other order for the minimum guaranteed fill, but generally the bid and ask prices that you see in the market have been posted by the Specialist. The Specialist is obligated to buy options from you at the posted bid price up to the minimum guaranteed fill, and sell options to you at the posted ask price up to the minimum guaranteed fill, provided the bid and ask prices have been posted for more than a minute. If the bid and ask is less than a minute old, it is at the Specialist's discretion whether or not to fill the order. However, generally speaking, a Specialist will usually honour the bid and ask even if it is less than a minute old. A Specialist is not obligated to trade between the bid and ask price.
You say that at the time you placed your sell order, the bid was $6.40. That is the price the Specialist was obligated to buy your options from you at, not $6.75. If the bid price moved up to $6.75, and was more than a minute old, then the Specialist would have been obligated to fill your order.
In our options seminars I always tell people that if you want to buy immediately, you pay the posted ask, and if you want to sell immediately, you take the posted bid.
From a market mechanics prospective, if your sell order was for the minimum guaranteed fill, then it should have been posted as the ask price, but only if your order was better than the existing ask price. Even if your order was posted as the ask price, you are not guaranteed that a trade will take place at that price unless there is someone who wants to buy your options at $6.75. Remember, the ask price is simply an offering, no one is obligated to trade against you at that price.
I hope this provides some clarification, if not, or if you have any other questions, please let me know. (I'm out of town all next week. Jan 25 - 29)
Patrick McDonagh
Manager, Derivative Product Development
Toronto Stock Exchange
PS, We are making constant improvements to the options & futures page on the TSE web site www.tse.com. The most recent addition is an option pricing calculator. Please come check it out.
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