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- 24 May 2013
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Ultimately we trade with MM 99% of the time. Start at mid and go worse from there. You should never have to hit the bid or offer to get a fill. If you are worried about brokerage go worse of the mid straight up. Try not to trade itm options as the MM will want you to cross the spread more. Good luck.Underlying was NAB, so a very liquid name, but a relatively illiquid option (way OTM). However I frequently trade options that are relatively illiquid due to being way OTM, as usually (as is the case here) I look to close out limited reward positions (such as covered calls) if I can pay <20% of the premium I originally took in to do so, and this wasn't a problem for the last few years, until now. IIRC the last time I had this happen was around 2019 or so.
I use IB, which does charge per contract, but there is a minimum brokerage which is equivalent to about 7 contracts - usually it doesn't matter, but it does if you end up getting 1 contract nibbled - because if you then move the bid/offer in a tick trying to get the rest filled, that counts as a separate order, so now you've paid brokerage for 7 contracts to get 1. And this could happen potentially multiple times, if they wanted to get really nasty about it. If you leave the order untouched, there's no issue if they end up filling the rest of it eventually, but that may or may not happen.
As noted above, once somebody (and it may well have been another retail trader, I have no way of knowing for sure, but it didn't feel like it) nibbled off 1 contract, I got paranoid about them nibbling away 1 or 2 at a time if I kept moving the order, and end up having to pay multiple lots of minimum brokerage for a simple trade that I expected to get filled all at once (as has been the case for the last few years). So I left it untouched. The underlying was fairly steady hovering between 34.40-34.50 for the rest of the session, but the other 49 went unfilled. Normally I like to close out limited reward trades once I've scooped up 80% of max profit, but if this nibbling issue is once again a problem, I might have to adjust my tactics and start letting these run to expiry, and hope I don't get burned by it.
My order was near the mid at the time. Now to be fair, I do nibble at the spread myself when trading options ie. I will start way on my side, then move it in tick by tick at short intervals until it gets filled or it gets to a price where I don't want to trade at anymore. But if the MMs keep insisting on showing rubbish spreads like 0.76/1.02, it basically forces you to nibble, you will go broke if you persist in hitting the bid/offer into those kinds of spreads. If they showed something like 0.88/0.90 to begin with (which is often what you ultimately get filled at anyway when trying to work a spread like 0.76/1.02) I would probably just hit the bid or offer and be done with it.
Ok that explains it then front month is where the liquidity is anything after that bend over and pay the MM taxIt was the May expiries, and well OTM, so it was indeed less liquid than normal, but I've been doing these all the time and it hadn't been an issue for a few years up until now. Yes that has been my experience as well, have usually been able to get the whole order filled within 1 or 2 ticks of the mid, so I thought this nibbling behaviour had been nipped in the bud. Since it appears to have cropped up again, and I've had a recent 1.5 year gap where I haven't been trading at all, thought I'd post my experience to check if others happen to have noticed this behaviour starting up again recently.
Ok that explains it then front month is where the liquidity is anything after that bend over and pay the MM tax
I have noticed in the past week spi futures depth is very thin, alot of only single digit qty in the buy/sell side. Maybe that might have something to do with it as well.
Another thing you may have missed during your hiatus is that the ASX in its infinite wisdomhas brought in a rule where retail can't trade any single leg options in the first half hour after the spi opens for the day.
Actually I may have lead you astray here. It looks like that only applies to index options ie XJO.Another thing you may have missed during your hiatus is that the ASX in its infinite wisdomhas brought in a rule where retail can't trade any single leg options in the first half hour after the spi opens for the day.
calls or puts and what stock, strike and expiry?Just spotted this today... perhaps some/most/all of the nibbling could be coming from retail traders after all. I definitely didn't see this sort of thing on the market depth back when I placed the aforementioned NAB trade a few months ago. But now that I've seen this, in hindsight I guess what could've happened is that another retail came along after my order was already on the market, saw my order sitting in-between the MM spread, decided it was good enough for them and hit the bid, nibbling off 1 of my contracts.
So maybe it's not the MM's doing after all, but I just can't understand the rationale behind this sort of order. These contracts are the usual 100 lot size, so 1 contract @ 0.345 is $34.50. Even with IB that'll cost $2.75 incl GST due to minimum brokerage, so the brokerage is going to gobble up 8% of the premium. And with a ripoff big bank broker, the brokerage would be more than the premium!
Wonder if anyone else has any ideas on where these are coming from, and why they're doing them.
View attachment 207094
well my two platforms refuse to even place an order ( to sell ) where the total proceeds ( before brokerage ) is less than the brokerage , so i can't sell ( online ) a parcel of less than $5 or $10 ( depending on which platform i am using )Just spotted this today... perhaps some/most/all of the nibbling could be coming from retail traders after all. I definitely didn't see this sort of thing on the market depth back when I placed the aforementioned NAB trade a few months ago. But now that I've seen this, in hindsight I guess what could've happened is that another retail came along after my order was already on the market, saw my order sitting in-between the MM spread, decided it was good enough for them and hit the bid, nibbling off 1 of my contracts.
So maybe it's not the MM's doing after all, but I just can't understand the rationale behind this sort of order. These contracts are the usual 100 lot size, so 1 contract @ 0.345 is $34.50. Even with IB that'll cost $2.75 incl GST due to minimum brokerage, so the brokerage is going to gobble up 8% of the premium. And with a ripoff big bank broker, the brokerage would be more than the premium!
Wonder if anyone else has any ideas on where these are coming from, and why they're doing them.
View attachment 207094
Ok best guess is this. BTO on 22/8 as a speculative downside play closing out today for a loss. Or option 2 STO on 22nd ( to buy RIO below $112) or naked speculative bullish outlook. Take your pick.RIO Sep 4 $112 puts. Looks like the 2 contracts @ 0.34 got filled a few mins ago.
That is why I thought the first option was most likely. Capped loss and unlimited profit potential (well to 0 anyway) But yea small size maybe some boomer filling in their days playing options smallOh I get the rationale behind the actual plays, last week I sold the $112 puts expiring today myself, to try and pinch some quick decay. Which is why I was looking at next week's $112 puts just now, to potentially reutilise the collateral once today's ones are off the books (though it's too far OTM at the moment so I'll probably hold off for now).
But I sold a lot more than 1 or 2 contracts. It's the sizing, not the strategies, that I can't understand - even with a low cost broker, that brokerage will eat up a ton of PNL in % terms due to minimums. Maybe others just aren't as pedantic as I am about getting bang for their brokerage buck I guess.
That is why I thought the first option was most likely. Capped loss and unlimited profit potential (well to 0 anyway) But yea small size maybe some boomer filling in their days playing options small
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