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from what i have read, i believe the MMs typically use an automatic system, whereby the MM traders will set certain parameters in their computer system, then let it hum away and fill orders automatically, adjusting the parameters as appropriate. they won't usually have an operator manning the desk manually filling every trade.so what i think this means is that if the spread is say 1.68/1.76, if you try to buy at 1.72 and you don't get filled practically straightaway, you aren't going to get filled at that price unless the underlying moves against you (in which case if you haven't changed your limit then you are not really getting the mid as naturally the spread will move with the underlying), or they alter the parameters of the system, which could only happen at the start of the day except if there are any intraday price sensitive events, or a retail trader happens to come along and is more willing to play fair.if you don't get filled in a few seconds then IMHO you need to adjust your limit or pull your order off the market. if you let it stay there unadjusted for more than a few minutes, i believe the MM systems then flag it as an "unwatched order" or some such. at which point they will simply sit on it, waiting until the underlying moves enough to put your limit almost all the way to their side of the spread, only then they take it out.in any case if anyone knows how the MM systems actually do work (i'm just hypothesising here!), would be very interested in being enlightened!given that, i'll usually work the spread, unless the spread is like 1 or 1.5c wide (which does occasionally show in the big six optionables near the money), in which case i can't be bothered and will just hit the bid or offer. so if i was looking to sell say RIO puts and the market is showing 1.68/1.76, i start by offering 1.75. if i don't get filled within about 5 seconds (which would probably happen 99% of the time), i drop my ask to 1.74, wait a few more seconds, and observe. i keep going in this manner until i either get filled or i get to halfway between the mid and their side of the spread, which typically takes under a minute. if i haven't been filled by then i will be forced to decide if i am desperate enough to keep coughing up more and more of the spread, or if i'm fine to leave my position as is and pull my order off the market. obviously i mustn't have felt desperate enough when looking to sell those NAB puts. i let emotion take over the decision making process (emotion of loathing for the MMs that is), and i paid for it.usually i tend to get a fill at the mid or 1-2 ticks their side of the spread, though of course there are exceptions. and occasionally you'll cop slippage as the underlying might suddenly jump during those few seconds you're waiting for a bite before adjusting your order. so you think you got a fill at the mid but instead the spread had jumped along with the underlying and your order really got filled on their side. although you never know your luck - a couple of weeks ago when i was looking to sell CBA puts the market was showing 1.54/1.60. so as is my usual practice i offered 1.59 and instantly got filled - and this was a true fill not a case of slippage, straight after the fill the spread was still 1.54/1.60. i almost fell off my chair that happens like once every 100 trades or so. may have been another retail trader rather than an MM, though the fact that it was filled instantly suggests it may have been MM spread overlap eg. MM1 showed the market 1.50/1.60 but MM2 showed 1.54/1.64, so MM2 ended up taking out my ask at their mid. can't remember the exact depth though.still in QBE. i've had a good run in it since last nov as per earlier posts. only downer was getting called away at 14 a few months ago, then not paying attention and shorting puts at 14 to at least collect more premium if not get the stock position back, but hey sometimes resistance levels get breached and sometimes work gets in the way. i rolled again when the june 16 calls expired OTM. bought aug 16 calls at 0.84 and sold 2x the july 16 calls (ie. closing the long position opened back in may plus opening a new short position) for 1.05 total. my thought process here is that the aug contracts will capture the interim profit announcement, and based on last years calendar, will capture the ex-div date as well, allowing an early exercise to strip the dividend if optimal to do so. the july contracts capture neither of those, so rolling to july-aug calendars seemed the logical trade to me. i didn't see much benefit in rolling the far leg out to sept since aug is sufficient to capture that potential price catalyst. i may have to buy back the july calls on thurs this time around though, since i do want to be long those aug calls to capture the earnings announcement.
from what i have read, i believe the MMs typically use an automatic system, whereby the MM traders will set certain parameters in their computer system, then let it hum away and fill orders automatically, adjusting the parameters as appropriate. they won't usually have an operator manning the desk manually filling every trade.
so what i think this means is that if the spread is say 1.68/1.76, if you try to buy at 1.72 and you don't get filled practically straightaway, you aren't going to get filled at that price unless the underlying moves against you (in which case if you haven't changed your limit then you are not really getting the mid as naturally the spread will move with the underlying), or they alter the parameters of the system, which could only happen at the start of the day except if there are any intraday price sensitive events, or a retail trader happens to come along and is more willing to play fair.
if you don't get filled in a few seconds then IMHO you need to adjust your limit or pull your order off the market. if you let it stay there unadjusted for more than a few minutes, i believe the MM systems then flag it as an "unwatched order" or some such. at which point they will simply sit on it, waiting until the underlying moves enough to put your limit almost all the way to their side of the spread, only then they take it out.
in any case if anyone knows how the MM systems actually do work (i'm just hypothesising here!), would be very interested in being enlightened!
given that, i'll usually work the spread, unless the spread is like 1 or 1.5c wide (which does occasionally show in the big six optionables near the money), in which case i can't be bothered and will just hit the bid or offer. so if i was looking to sell say RIO puts and the market is showing 1.68/1.76, i start by offering 1.75. if i don't get filled within about 5 seconds (which would probably happen 99% of the time), i drop my ask to 1.74, wait a few more seconds, and observe. i keep going in this manner until i either get filled or i get to halfway between the mid and their side of the spread, which typically takes under a minute. if i haven't been filled by then i will be forced to decide if i am desperate enough to keep coughing up more and more of the spread, or if i'm fine to leave my position as is and pull my order off the market. obviously i mustn't have felt desperate enough when looking to sell those NAB puts. i let emotion take over the decision making process (emotion of loathing for the MMs that is), and i paid for it.
usually i tend to get a fill at the mid or 1-2 ticks their side of the spread, though of course there are exceptions. and occasionally you'll cop slippage as the underlying might suddenly jump during those few seconds you're waiting for a bite before adjusting your order. so you think you got a fill at the mid but instead the spread had jumped along with the underlying and your order really got filled on their side. although you never know your luck - a couple of weeks ago when i was looking to sell CBA puts the market was showing 1.54/1.60. so as is my usual practice i offered 1.59 and instantly got filled - and this was a true fill not a case of slippage, straight after the fill the spread was still 1.54/1.60. i almost fell off my chair that happens like once every 100 trades or so. may have been another retail trader rather than an MM, though the fact that it was filled instantly suggests it may have been MM spread overlap eg. MM1 showed the market 1.50/1.60 but MM2 showed 1.54/1.64, so MM2 ended up taking out my ask at their mid. can't remember the exact depth though.
still in QBE. i've had a good run in it since last nov as per earlier posts. only downer was getting called away at 14 a few months ago, then not paying attention and shorting puts at 14 to at least collect more premium if not get the stock position back, but hey sometimes resistance levels get breached and sometimes work gets in the way. i rolled again when the june 16 calls expired OTM. bought aug 16 calls at 0.84 and sold 2x the july 16 calls (ie. closing the long position opened back in may plus opening a new short position) for 1.05 total. my thought process here is that the aug contracts will capture the interim profit announcement, and based on last years calendar, will capture the ex-div date as well, allowing an early exercise to strip the dividend if optimal to do so. the july contracts capture neither of those, so rolling to july-aug calendars seemed the logical trade to me. i didn't see much benefit in rolling the far leg out to sept since aug is sufficient to capture that potential price catalyst. i may have to buy back the july calls on thurs this time around though, since i do want to be long those aug calls to capture the earnings announcement.
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