Thanks to David, tuck, and Herm for their thoughtful replies to my earlier message, but I don't think I have made my question, and the concerns that generated it clear. Please bear with me for a few paragraphs.
I read "The Electronic Daytrader" mentioned by David, and the paper linked by tuck, about a year ago while I was engaged in serious daytrading. I agree with Herm that the paper is an interesting read, and I have to be fair to note that I was not in the game in 1990, but I think it is important to note that the data for that paper were from that year, and that the the subject of the paper (the practice of delaying trade reports) is more of historical significance than being a problem for todays active traders with their Level 2 screens, dynamic charts, time and sales, etc. My recent experience with daytrading, noting that unlike in 1990 when market activity was dominated by the professional MMs, and factoring in the industry complaints about what daytrading has done to the volatility of the market, leads me to conclude that there is a new set of issues traders have to deal with, not the least of which is the abundance of other individual traders out there competing with one another for a limited number of shares.
I have a reasonably good understanding of the stock exchanges and the NASDAQ marketplace, the role of ECNs, their status relative to MMs (e.g. ECNs cannot be SOESed, so MMs can match ECN quotes and take a larger share of the action), etc. There is a tenet of the daytrading religion that says you don't trade thin stocks with wide spreads; it's too dangerous. If there are few MMs in a stock, they will play games with their quotes and manipulate the spread and generally eat your lunch. Now I find myself interested in trading options, and staring me in the face is a thin market with enormous spreads that would cause any self respecting daytrader to sit on his hands. And I really don't know how the options market operates.
Today I was looking to buy (on paper) the Apr 140 PUTS for SUNW, expecting SUNW to withdraw from an early high. The puts opened at 12 1/2 x 13 1/4 with SUNW at about 129, and closed at 15 1/2 x 16 1/4 with SUNW at 125. A buy at the ask and sell at the bid would have been good for 2 1/4 points, or 17% profit!! Fantastic! right?? Except there are only 60 contracts in existence, and NONE of them traded all day. Talk about non-liquidity!!
What I am looking for is something that will tell me what to expect from the marketplace when I decide to pull the trigger on an options trade. How do I find quote size? What rules of thumb, or regulations apply? What if I had entered an order to buy 10 contracts, or maybe even 60 contracts on the SUNW PUTS? What if I did try to buy at a better price than the ask? Where do my limit orders go? It's obvious to me I have some homework to do. I'm asking for some direction where to find this kind of information.
Thanks to all. |
