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Options order nibbling


Underlying was NAB, so a very liquid name, but a relatively illiquid option (way OTM). However I frequently trade options that are relatively illiquid due to being way OTM, as usually (as is the case here) I look to close out limited reward positions (such as covered calls) if I can pay

I use IB, which does charge per contract, but there is a minimum brokerage which is equivalent to about 7 contracts – usually it doesn’t matter, but it does if you end up getting 1 contract nibbled – because if you then move the bid/offer in a tick trying to get the rest filled, that counts as a separate order, so now you’ve paid brokerage for 7 contracts to get 1. And this could happen potentially multiple times, if they wanted to get really nasty about it. If you leave the order untouched, there’s no issue if they end up filling the rest of it eventually, but that may or may not happen.

As noted above, once somebody (and it may well have been another retail trader, I have no way of knowing for sure, but it didn’t feel like it) nibbled off 1 contract, I got paranoid about them nibbling away 1 or 2 at a time if I kept moving the order, and end up having to pay multiple lots of minimum brokerage for a simple trade that I expected to get filled all at once (as has been the case for the last few years). So I left it untouched. The underlying was fairly steady hovering between 34.40-34.50 for the rest of the session, but the other 49 went unfilled. Normally I like to close out limited reward trades once I’ve scooped up 80% of max profit, but if this nibbling issue is once again a problem, I might have to adjust my tactics and start letting these run to expiry, and hope I don’t get burned by it.

My order was near the mid at the time. Now to be fair, I do nibble at the spread myself when trading options ie. I will start way on my side, then move it in tick by tick at short intervals until it gets filled or it gets to a price where I don’t want to trade at anymore. But if the MMs keep insisting on showing rubbish spreads like 0.76/1.02, it basically forces you to nibble, you will go broke if you persist in hitting the bid/offer into those kinds of spreads. If they showed something like 0.88/0.90 to begin with (which is often what you ultimately get filled at anyway when trying to work a spread like 0.76/1.02) I would probably just hit the bid or offer and be done with it.



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