Backing Away

Discussion in 'Options' started by the_dude, Mar 20, 2002.

  1. I'm curious - this morning I sent in a limit order (I use IB) to buy equities call contracts at the offer price (my order size was under the posted offer size). The order went live (green light in TWS), but then about 3 seconds later (before I was filled), the offer was lifted 0.10 higher, forcing me to cancel that order and buy 0.10 higher than the offer that my order originally hit.

    With many exchanges, i.e. nasdaq, the penalties for backing away can be quite severe - is there a similar rule regarding equity options? And if there is, do I have any recourse?

    Thanks,
    -dude
     
  2. mjt

    mjt

    You should contact IB and they can do an audit trail on your order. At least that's what def always says.

    Are you using 'best' to route your order? Their 'best' algorithm doesn't always work with options. If you can, route the order directly to the exchange with the best price.
     
  3. Def,

    Is this true?
     
  4. If the market that you are trading in is in "fast market mode", then the exchanges have the right to fade any order since all quotes are subject.

    Likewise, if the option that you are trading is "locked or crossed", then the market makers/specialists do not have to honor the quote and can back away.

    In addition, if you are trading as a broker/dealer or a market maker, the exchanges have the right to fade you again.
     
  5. The problem with "disputing" the "no fill" is that you have to leave the order live, and if they rule against you the slippage is very ugly.

    The time it takes to get a ruling is usually about an hour; if it moves against you, they will tell you the trade stands, if it moves with you, "fast market", "bad quotes on underlying", "clerk error", etc.
     
  6. What I usually do is try to document as much information as possible. For instance, I find out if the option is locked or crossed or in fast market mode. If it isn't, I get the time I entered my order and get the time the quote existed (the exchange and the time the old quote was entered and the time the new quote reflected the faded market). I then write to the exchange.

    I figure that although I will never get the quoted price, I could (1) at least cause the legal fees of the offending specialist/market maker go up and (2) cause my share of "complaints" to get the attention of the SEC or the SRO. That to me is worth it.
     
  7. just21

    just21

    Have you turned on the bid and ask exchange id in tws? Click on page then layout, turn on the bid exchange and ask exchange. Now back in tws you can see which options exchange is bidding or offering. List options using best in the usual way. If two or more exchanges are the best bid or best ask you can choose to route the order to the exchange of your choice by clicking on best on the order line after you have selected an option to trade, and then choosing the exchange from the list. I route to Ise (I) first, then Pse (P), Cboe (C), Phlx (X), and Amex (A) in that order as the first two are computerised and you should get instant fill. Amex and Phlx do back away sometimes so route to the computerised markets.
     
  8. Freehouse,

    We call in a number of fades a day, puts them through the paces, makes me feel better, net result is it costs us a little money.
     
  9. just21

    just21

    What size orders are you having this problem with?
     
  10. ktm

    ktm

    An MM will back away. It happens to me all the time. I'd rather post a limit at the bid and wait for someone to take it from me.

    I would suggest looking for autoex when hitting a live bid/offer. IB sets the color to white (I think) when autoex is turned on. This usually ensures a quick fill as it's automated. Technically, the MM has a period of time to either honor your price or fade. Only if he makes a pattern of this is he guilty of backing away. If I were you, I would have just left it posted.
     
    #10     Mar 20, 2002