“Markets so great you can drive a truck through them”

That was a quote from a Cboe floor broker in 91 or 92.  He was referring to a customer reaction to a 1 ¼ 2 ¼ market he transmitted to a customer on a spread from the crowd.  As a market maker those wide markets were fun but they did not bring a whole lot of business.  The brokers would then “squeeze” the order and bid less, say 1 ¾ knowing a real offer was much closer.

 

Nowadays we have the electronic market place which is great for the top 100 liquid equity and index option contracts.  The other 3500 listed equity options are not getting a lot of love.  Recently I had a client who tried to exit a spread and got faded for .80 before giving up.  The “electronic eye” of the liquidity provider that trolls the midpoint point of an option series has lots of smarts and can move or fade a bid or offer easily.

 

LivevolX for Lightspeed

 

The advent of electronic market making brought an arms race to latency in option markets which left just a few winners and the old floor trading crowd moved to a roll of market taker.  Any real liquidity dried up in the names out of the top 100.  The only real advice I can give is:

Mind the spread width if interested in a more illiquid name and build the bid/ask in to the performance of the trade.

Close into strength so if your position is short delta you need the market dropping to entice the LP’s and if the positon is long delta the market has to be rising to get a decent close.

Just a few pre-tax vote tidbits for our readers.

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