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Nope your information is old. All pre opening trades now go to ROSS ... the
rapid opening system. RAES can be as many as 50 contracts in some crowds. The
SEC has approved 100 and that will come into effect soon. RAE's rolls in OEX
so the $10 limit doesn't apply anymore. It starts at $10, but you don't go off
intraday.
Stuff only goes to E BOOK if the brokerage firm designates it. Generally two
ticks or less go to E BOOK. More than two ticks goes to the broker
workstation....HOWEVER having said all of that you SHOULD check with your
specific broker to understand EXACTLY what they do, just because a system
exists doesn't automatically mean that your broker uses it.
E BOOK, for example, used to have a fee attached to it ... so some people
avoided it .. especially for large orders. There are no exchange fees or book
fees in equities.... in fact as of 07/01 there is 40 cent rebate. Not true for
index options ... so it is critical you check with your broker for OEX,,SPX..DJX
and NDX trades.
Gitanshu Buch wrote:
> > But how would I insure that I actually get
> >my fills?
>
> "The Doctor" can correct me if I'm wrong, but this is what I know:
>
> There are 2 primary order management systems available to off-floor traders
> like you & me:
>
> EBOOK (Electronic Book) and RAES (Retail Automatic Execution System). Both
> are price and time-stamp sensitive, and in some cases, volume-sensitive.
>
> EBOOK gets bulk of the pre-market opening orders and orders from all sources
> (incl the floor) in fast market conditions. EBOOK therefore gets priority
> execution status, as a systemic prerogative. Chances are that the
> market-on-open orders you referred to in an earlier post got executed
> through the opening rotation on EBOOK.
>
> RAES gets all the orders that are
> a/ <= 20 contracts per strike per order
> b/ <= $10 premium on the offer side.
>
> RAES rejects orders if
> a/ EBOOK trades at the price advertised on RAES or elsewhere for your order,
> but your order could not get filled.
> b/ Some other exchange advertises a better price.
>
> In both cases, your order is given to the floor, where the floor market
> maker will fill it on the open outcry.
>
> Everything happens electronically, so while one thinks this takes time, it
> takes seconds.
>
> This is where your brokerage comes in:
>
> A mid-point bid to buy by default becomes the best bid.
> A mid-point offer to sell by default becomes the best offer.
> At constant underlying price, therefore, you gotta get the fill.
> If not, your brokerage is incompetent.
>
> How can the systems NOT execute if your price is the best, regardless of
> which system carries the order?
>
> RAES and EBOOK don't handle 100% of the retail order flow into CBOE. Some
> brokerages have proprietary market makers/systems, some have contracted
> floor brokers for order flow. This is where different customers experience
> different fills within the same time/underlying's price snapshot. This is
> also where different quote systems will give different b-a spreads.
>
> For eg, Timberhill (interactive brokers.com) and Schwab typically will make
> differently priced markets for the same option at the same time - the
> differences will be in eighths and quarters on each side of the spread, but
> you realize that for size, this is what order agglomerators do and make
> money off the flow.
>
> Limit order within the b/a spread is "obligatory" to be filled - else your
> broker or their order execution system is kiting you; and in very rare cases
> of fast market conditions will they not meet the obligation. In fact on OEX,
> volume has thinned out since the spring of this year. So theoretically while
> the fast market conditions don't exist, fact is that the reduced liquidity
> might make it "not worthwhile" for someone to make the market - thereby
> adding to the drying up of the liquidity.
>
> I would recommend calling CBOE - 1800 OPTIONS - and learning everything
> possible about the automated order execution system at that exchange for the
> sizes you talk about. Similarly if you are trading single-exchange equity
> options, call their info desk for that exchange's order routing system
> idiosyncrasies. It will be time well spent.
>
> >With our futures trading, we trade market on the open, since the
> >S&P volume is sufficiently large that our trading volume is equivalent to a
> >flea on an elephant's rear.
>
> >When it comes to options, I guess I'm worried about scalability. What
> >happens when we start trading some volume? It's one thing to trade 10
> >options. It's another when you're trading 50.
>
> Actually, OEX SPX MSH BKX are some of the most liquid index options. 50 lots
> = No Problem as far as floor systems are concerned - EBOOK or PAR.
>
> 50 lots will also get you a tighter b/a market than a 1 lot order, because
> the floor wants your business more than it wants the 1 lot business. They
> get more absolute dollars (commission + spread) from your order.
>
> But, whether your existing brokerage is competent enough to handle that size
> efficiently is another question.
>
> 50 lots on some obscure stock may be a problem getting a quote on if you
> call at lunchtime, but someone will make a market regardless if it is open
> outcry. It is in their interest to earn that spread + commission.
>
> Eg - at lunchtime,
> 50 lots on INTC = no problem.
> 50 lots on GPS = slight problem.
> 50 lots on Open Interest = 2 contracts, lifetime high for Stock XYZ = yes
> problem, but they will do it. This is where the human helps, you ask them to
> make you a market. Maybe they will make a wide market (instead of 1/8th,
> they'll make you a market that's 50 cents apart and that 50 cent spread =
> 25% of underlying's price). But make it they will.
>
> What I've learned is that if one's commitment to consistent presence/order
> flow/size is long term, it is better to have some relationship with someone
> on the floor. Whether it is a Schwab giving you a direct floor access
> number, or an EDF Mann or SLK or LIT/LFG giving you the same benefit - (I
> don't care who, as long as it is the human on the floor you speak with, and
> not an electronic joystick at the other end of your mouse click).
>
> Whoever trades your futures should be able to give you this functionality.
> Most futures firms have CBOE floor presence.
>
> These sizes and spreads make it worthwhile paying the extra commission (if
> necessary) to get the execution handled well. A lot of us focus on finding
> the best indicator/system, but then execution sort of levels out the edge.
>
> >I guess that's why we're starting to test writing naked options, since that
> way, we wouldn't have
> >that problem.
>
> >Another thing that puzzles me is, what about "Out of the Money" options?
> >This next trade, I might add 10 of those little $1 to $2 options and see
> how
> >they perform compared to our trading "In the Money".
>
> Order execution systems are neutral between in/out the money. Liquidity
> dries up the farther out you go, but again, someone will make the market -
> including RAES, as long as the parameters are satisfied. The spreads are not
> much of an issue there in dollar terms, though they make a big % impact.
>
> There is always someone willing to sell cheap options, regardless of what
> the risks are.
> Likewise, there is always someone willing to buy cheap options, because they
> dream of the home run 5000% roi trade.
>
> >Again, I'm not sure if
> >this is a viable trading alternative. We're never in a position too long
> >and our "average" holding period being approximately 2 weeks. Since our
> >time exposure is limited, I don't think it will enter into the
> calculations.
>
> As long as it is not the final 2 weeks to expiration. Else time plays a
> major role.
>
> >Finally, I need to emphasize that we're working strictly with OEX and SP
> >options. These appear to move in conjunction with our S&P trades.
>
> Both are liquid markets. 50+ lots are no problem. More a function of your
> brokerage. If you have unsatisfactory experiences, more likely a brokerage
> issue than an order routing system issue.
>
> Regards
> Gitanshu
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