|
PureBytes Links
Trading Reference Links
|
Rdnarad@xxxxxxxxxxxxx wrote:
>
> If you go to the CBOE and find a list of options which can be traded,
> you find quite a large list. If you then look to see how many are
> actually traded, the list is relatively small.
>
> So my question is, if I see that options can be traded but none are how
> do I make a trade and what determines if someone in the pit decides to
> make a trade.
>
> For example, let's say no options have been traded yet for a particular
> stock but I put a day order for a specific option in. How is it
> determined that it is filled or not?
The market makers in the pit have sheets of theoretical values for a
wide range of strikes at a wide range of underlying stock prices.
When your order comes in, they will check their sheets to determine the
theoretical value of the option you want to trade. Then they will
determine if your bid or offer gives them enough "edge" to bother
trading it.
In other words, if their value is 3 1/2 and you want to buy it at 4 or
sell it at 3, that might be enough edge to value. If you want to sell
it at 3 3/8, that might not be enough edge.
The fact that it is illiquid will generally cause them to want more edge
(both on your entry AND exit). Also, quantity will count. If you want
to trade a 1 lot of a series of options no one is interested in, the
locals may not care to trade with you at any price. Quantity should be
something they can hedge to make it worthwhile.
Basically, though, locals will trade any strikes with you for the right
price whether they have open interest or not. They can often throw them
in the position and offset them with other similar options. I have even
accidentally traded strikes that weren't listed before they got
discovered in clearing process.
Hope that helps.
Eric
|