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Ted Juszczak wrote:
> Do the futures exchanges have similar procedures for pricing their options?
> What happens in the case of a MOC (market on close) order for an option on a
> future, particularly on a thinly traded option? Do you get fillled at
> whatever the pit wants to give and how does that affect the settlements of
> the other options in the series?
>
> Te
There are no specialists in the options on futures. The pit has some
traders acting as brokers, some acting as marketmakers (locals), some
acting as both.
So when a customer wants a quote, the broker asks the pit and the
marketmakers make a market. The broker chooses the best bid and best
offer and reports that to the customer.
On an MOC, within the closing range a broker asks for a market in the
option and hits the best bid (in the case of a sell MOC). That best bid
could be from a marketmaker or another customer's order being worked by
a broker.
Typically a thinly traded option means a wider market, so when you place
a market order you risk extra slippage.
"The pit" is not a single entity that can decide "where to fill you".
Your floor broker fills your order at the best available price.
Usually 1 or 2 traders are responsible for settles. To a different
degree depending on the pit, they will try to settle options "in line"
with the rest of a series of options while also taking into account
orders that brokers are working. (i.e if a broker is working a 30 bid on
something and is unable, you shouldn't (but sometimes do) settle the
option 29) In thin markets, getting settles to line up is more
difficult. This (options settling away from value) is one of the
reasons that backtesting using historical option settlements has not
become popular.
Eric
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