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RE: What options to sell?



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>Is it really necessary to have bid/ask histories? Imo, most TA people
>do not use them in their systems, even if they may be very helpful.

I'll take this one for Michael:

Yes it is - in fact it is the only true way to know what an option's price
has been / is.

A lot of trades in options are spread trades. When I place a spread trade,
the prices of the individual legs are left to the discretion of the floor
market maker. The floor usually will give a b-a quote for the spread itself,
and when filled, they will give you the individual legs that you see print
on the tape. These individual legs usually get "filled" at prices that have
very little to do with the underlying at that point of time. Also, the trade
itself may be reported late (and the underlying may have moved significantly
away).

So the off-floor trader may see some really whacky prints on individual legs
without knowledge that the trade was a spread.

They don't broadcast option quotes with any special symbol identifying it as
a spread trade.

Most services don't even broadcast the b/a on the thinner options due to
bandwidth constraints.

A good place to see this phenomenon happen is in commodities - energies and
fixed income are 2 contrasting datafeeds. Fixed income (CBOT) breaks out
trades as spreads or outrights, Energy (Nymex) does not. Equities/indices
also do not.

So when modelling based on "last trade" basis, one is really taking chances.

Gitanshu