There is value to discussing this here since I think much can be learned from it. This applies to any investor trading options, any options. Its irrelevant the stock series or strike.
The order was given without being not held. It as given at 9:41:03. It took a minutes to find the symbol, which was a problem, because client did not say which of the short codes it was CQM, ZNE, LNEs. OTC and listed equities convert, "translate" into 3 letter codes which represent the particular underlying security. Either way, that only took about 1 minute to que the clients' account. Figure 9:43ish it goes in. Entered to sell the 100 share piece at 4 3/4. Client figures since it was sent electronically, it probably hits the floor and is perceived by the market maker at 9:44ish. Client looks at screen, option is 7/8 bid, goes to 5 bid. Feels that something must have been done. This is where Alien felt that something was wrong as it was bid 5 and he had a 4 3/4 limit.
This is exactly the misunderstanding.
You arent dealing with multiple market makers like a OTC stock where you can move from one to the other. You are dealing with one party, possible a few exchanges, where the party is permitted to slowly work through each of the options series. So first he starts with marchs, then aprils, then mays, etc. , going from strike to strike, then on to the next month. ONLY after he finishes going through the opening rotation, does he come back for "open" trading. He opened the option at 5, BEFORE WE RECEIVED THE CLIENT ORDER. The client then places the order to sell at 4 3/4. Now, with a bid adjusting to 4 7/8, even ngoing to 5, the client wonders why he doesnt see prints, why he hasnt been completed. Again, its fairly simplistic, as disappointing as it might be. The market maker is going through the opening rotation. He sees an order to sell at X but wont even deal with it until he finishes the rest of the months and strikes. He goes up the board one time, opening rotation, then opens it for trading. Any order received during rotation is held up until AFTER rotation.
You would also say , well why was the bid/ask moving. It moves because it is setup to auto-move back and forth. again..Any order received during rotation is held up until AFTER rotation.
Anyway, client calls at 9:45, 2 minutes later and wants to know why nothing was done. I believe it was explained to him about the delay and problem in finding the symbol. I don't know if the opening rotation was explain. I dont know if a trading desk can legitimately be asked to explain about options and opening rotations at 9:41.
At this point, client changes limit from 4 3/4 to 5. Feels it will move up. The offer becomes his about 4 minutes later. Again, the market maker is probably dealing with opening rotation and as well has to do a cancel and replace. Considering it is a very illiquid, thin trading option, he probably doesnt JUMP to it immediately. I know that the order was sent down at 9:45 because I have an electronic confirm by the electronic interface to the Pcoast.
A little bit later, about 5 minutes, 20 contracts print at 4 7/8. Unfortunatley, that doesnt help the client with a 5 limit. Had the client stayed at 4 3/4, he would have atleast been filled on the 20, else the market maker would have filled out himself at same price at 4 3/4. It never traded through because it was a trade at 7/8 and the client had a limit at 5.
The option only fell from there.
at 11am the client changed the limit BACK to 4 3/4.
There are a lot of wishes I have. I wish the client had gotten the piece off at 4 3/4. I wish the client had given a market order because 4 3/4, 4 5/8 and 4 1/2 would have been better than a 2 3/4 close yesterday. I wish the options market was more liquid. I wish that there was no opening rotations. I wish that options opened at the same moment as the stock. I wished it didnt take market makers 15, 20 minutes to finish an opening rotation. I wish market makers werent covering multiple stocks instead of just one as they could prbably do a better job. I wish there went multiple exchanges on options. I wish options didnt have goody and confusing short codes which is the only way the systems will take them. The PCOAST only takes automated orders for 20 contracts. While this isnt a big deal, it probably killed about 1 minute in a floor broker taking the order to the booth. I wish they took more than 20 automated. I wish there was a auto fill system for large orders, while RAES and PACE are limited to 10contracts with premiums above 10. I wish the client hadnt changed the order from 4 3/4 to 5 else those 20 at 7/8 would have been his at 3/4. but thats not here or there. All the complexities above must be understood and negotiated.
To be honest, I can understand his disappointment, seeing 100 contracts at 5 erode to a close yesterday of 2 and change, but thats the market. I think the order was handled properly, in line with standards I set on this desk. Clients must distinguish between good yet futile work and a market that moves against you, systems and exchange rules, procedures that work against you. Blaming us for those shortfalls is incorrect. else noone can develop a long term relationship. We dont take the other side and do the best we can. Sometimes, in this market, your best isnt enough. It wasnt a market order....4 3/4, 4 5/8 and 4 1/2 would have been better than 2 and change.
Time Date X Volume Price VWAP Bid Ask Size Cond Corr# Seq#
10:30:32 03/29 P 4.1250 4.5000
10:30:33 03/29 P 5 4.2500 32.9375
10:29:31 03/29 P 4.1250 4.2500 ?10:27:43 03/29 P 4.1250 4.2500 ?10:27:15 03/29 P 4.0 4.2500 ?
10:24:24 03/29 P 4.0 4.3750 ?10:24:19 03/29 P 4.1250 4.5000 ?
10:19:57 03/29 P 4.0 4.3750 ?10:19:51 03/29 P 3.8750 4.2500 ?10:19:48 03/29 P 4.0 4.3750 ?10:19:46 03/29 P 3.8750 4.2500 ?10:00:13 03/29 P 4.5000 4.8750 ?
09:58:26 03/29 P 4.6250 5.0 ?
09:57:31 03/29 P 4.7500 5.0 ?09:55:35 03/29 P 4.6250 5.0 ?
09:55:17 03/29 P 4.5000 4.8750 ?
09:55:01 03/29 P 4.5000 4.8750 ?09:53:49 03/29 P 4.3750 4.7500 ?
09:53:41 03/29 P 4.5000 4.8750 ?09:52:19 03/29 P 4.6250 5.0 ?
09:51:19 03/29 P 4.7500 5.0
09:50:01 03/29 P 20 4.8750 33.9375
09:49:59 03/29 P 4.8750 5.0 ?09:48:20 03/29 P 4.8750 5.2500 ?09:46:54 03/29 P 4.7500 5.1250 ?
09:45:12 03/29 P 4.8750 5.2500 ?
09:44:30 03/29 P 5.0 5.3750 ?
09:43:18 03/29 P 4.8750 5.2500
-Regards,
Steve |
