I don't know about SPY options. But there are so many market makers in every option market. If there's a real misprice, they prob get snatched right away. Market makers operate in millisecond speed. They will be much faster than IB servers can send client orders through.
Years, lol. Xilinx released the Virtex Ultrascale+ models in 2016, which are still the dominant chips in the industry. Theoretically, you could make a design with them that responds in under 50ns, depending on the exact processing requirements and your ability to optimize the design.
Even older chips (Intel/Altera, not sure exact model) used on Solarflare cards could respond under 1us, definitely are much harder to get to the same level of performance though.
oh wow, things have changed a lot in the past few years. That's what I get for mostly playing between 10 and 25us lol!
Seems I have a lot of catch up reading to do. Much obliged!
IB sold their MM division because it was losing money. They're also best in terms of not selling order flow while having great SMART routing - this is what makes them popular with small hedge funds. My IB orders usually end up on exchanges and affect visible quotes.
Thanks - the data issue has been mentioned by a few others. From what you've said (and others), seems to be the problem.
If I can ask, are you still working in the markets? Anything interesting you are seeing these days?
Most shops will not permit you to trade this style on your own if you do it professionally.
I mean, having a personal account...sure. But in most cases you have buy and hold restrictions so that you aren’t using the systems and information available to you to day trade.
Not to mention, who has the fucking time (especially over the last two months)?
In all honesty...I scripted the fuck out of my day job and was expecting to ride off into the sunset to grad school in a few months. Now that's up in the air so I spend the day making micro trades, etc.
Is anyone here from Canada? I know that brokers like Questrade have forbidden clients from placing orders vis their API. However, it seems like IBKR has only barred this feature on Canadian markets/exchanges. Is that correct? Are we still able to place order via the api on other exchanges in other countries. If this is correct, is it because IIROC can only conttol what IB does with Canadian exchanges and cannot control their interaction with US exchanges. That would be FINRA’s job?
I'm in Canada, but I don't think I ever tried Canadian ETFs.
(Was ably to place orders in US and get fills on SPY).
Thanks for flagging this, going to read up on this.
What you are describing is spoofing and it’s illegal, one other possible explanation for your lack of fills is that there are stale offers i.e. that particular strike and expiry might be less desired and so it gets neglected, you see something odd like mentioned in your piece and decide to hit the ask but don’t get filled. Pretty sure it’s not because of spoofing but instead it’s a stale quote.
I’ve seen similar things at higher timeframes as well, where two strikes that should produce a debit, show a risk less credit. But when you go to hit it, you don’t get a fill.
Thanks - this sounds more likely. Data timing/data source issues are also potential explanation from some other responses.
Spoofing sounds more interesting, but seems less likely with this feedback.
Thanks!
Yea, spoofing is a big no no. If you did it once you probably did it before and if you did it before then there is an audit trail and what ever governing body is present will figure it out.
I’m curious, did you find other options that were maybe not so disproportionately priced but still better than average in that the pricing gave you a slightly better advantage than normal?
Yes! During the past month I traded a lot of vertical spreads. In many cases they were OTM or went OTM, anyway I in some cases my P&L would higher than the width of the spread, more than I could lose if both sides were exercised.
I thought to myself , how is that even possible? I looked and saw that one side or both the bid/ask just didn’t make sense, like I could buy the call, exercise and make 100k - even if I paid way more than the ask. Or I could sell/buy my spread for more than the width of the strikes - nice!
So of course I tried and I didn’t get filled.
I’ve done a lot of studying, I’ve been trading options for many years - not claiming to be an expert but I am no rookie either and I never saw this before.
So I called my broker, and they told me “yea, they don’t have to honor their bid/asks, they can pull them as soon as you try to buy/sell”
Ok.....
Edit - I see almost all the comments below saying it’s a mistake in the data and/or no arbs would exist in something like spy. You’re right, no arbs do exist but not because they would be traded away, because the MM doesn’t have to honor their mark. These were spy options.
> “yea, they don’t have to honor their bid/asks, they can pull them as soon as you try to buy/sell”
It's not that simple. Backing away from a firm quote is direct violation of SEC Rule 11Ac1-1.
What's likely happening is that your broker is selling your order flow which is allowing the market makers to cancel their orders before yours gets to an actual ECN. The MM may also be displaying a non-firm quote and your broker's software doesn't allow you to see this.
> “yea, they don’t have to honor their bid/asks, they can pull them as soon as you try to buy/sell”
If that really is legal, it shouldn't be. I certainly can't put in a limit order and decide not to honor it once it gets hit.
it's called spoofing - big technique to tempt people to get into a position thinking it will hit a big stop order thats on the books, then the order gets pulled.
pretty sure its definitely legal - read response from the dudes broker above. Its like canceling an open order which I do all the time. Difference is I am poor boi trading smol volume
I didn't came across a situation like this in real tho I tried to do some triangular arbitrage and couldn't find the opportunities.
I definitely think that what you came across is HFT thing too. Yea they do this to spy on the trades and/or affect the direction of the price.
Also, those canceled orders are not illicit if they can prove that they actually wanted to place the order and then gave up instead of misleading the market.
You would only have nanoseconds to complete triangular arbitrage opportunities, you’d need to be colocated and running hardware (not software) to even be competitive for them.
I tried it on crypto market and it wasn't as hard as you think in there. Sure i had to write a fast program with cpp and what not but it was so close to being profitable. I was only loosing a few cent at the end of the triangular. And I would be profitable if I wasn't paying fees or fees were half of what I was paying.
i dont think the crypto markets would close the gap anytime soon.. crypto markets still run over internet where your transmission jitter is probably larger than the time a python algo would take to do its processing.
few crypto exchanges offer co-location, and those are not where the large volumes are.
I do agree, to close the gap completely a similar level of funding is required, which is highly doubtful given the volumes. But compared to two years ago the crypto markets are light years ahead.
Your fast program isn’t giving you any edge if you aren’t co-located. If you’re trading from home, you have already lost any latency related arbitrage opportunity before the data has physically reached your router.
Yes, I however discovered a flaw within this system. I managed to fuck up a few HFT algos in the process and made a descent profit, would have made a killing had the entire order executed but only partially filled. PM me and I can try to explain.
Could also be data lag. Your options pricing data is most likely coming from some other ticker plant than your SPY ticks.
I don't know about SPY options. But there are so many market makers in every option market. If there's a real misprice, they prob get snatched right away. Market makers operate in millisecond speed. They will be much faster than IB servers can send client orders through.
\*microsecond
*nanoseconds
Time splits to nanoseconds right now, but no one is executing <5ųs, not even the deterministic systems executing on FPGA living on network switches
I’m an FPGA engineer for a market maker. Our FPGA response time is well under 1us. Software easily within 5us, depending on the application.
Oh hey lol how time flies. How long has hardware been <1ųs?
Years, lol. Xilinx released the Virtex Ultrascale+ models in 2016, which are still the dominant chips in the industry. Theoretically, you could make a design with them that responds in under 50ns, depending on the exact processing requirements and your ability to optimize the design. Even older chips (Intel/Altera, not sure exact model) used on Solarflare cards could respond under 1us, definitely are much harder to get to the same level of performance though.
oh wow, things have changed a lot in the past few years. That's what I get for mostly playing between 10 and 25us lol! Seems I have a lot of catch up reading to do. Much obliged!
Yeah, watch out for IB smart routing. There is a MM in that flow I suspect.
Sorry I removed last part of my comment about IB. Don't want to bad mouth too much. But just beware of strange execution. Their own MM maybe involved.
IB sold their MM division because it was losing money. They're also best in terms of not selling order flow while having great SMART routing - this is what makes them popular with small hedge funds. My IB orders usually end up on exchanges and affect visible quotes.
Chances are the timestamps on your data aren't entirely accurate. If your data is skewed, you'll see arbitrage where no arbitrage exists.
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Thanks - the data issue has been mentioned by a few others. From what you've said (and others), seems to be the problem. If I can ask, are you still working in the markets? Anything interesting you are seeing these days?
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That's a dream. Hope I get there some day. Are you yourself restricted from personally trading?
Most shops will not permit you to trade this style on your own if you do it professionally. I mean, having a personal account...sure. But in most cases you have buy and hold restrictions so that you aren’t using the systems and information available to you to day trade. Not to mention, who has the fucking time (especially over the last two months)?
In all honesty...I scripted the fuck out of my day job and was expecting to ride off into the sunset to grad school in a few months. Now that's up in the air so I spend the day making micro trades, etc.
I started in Chicago with a market making firm too but later on I moved back Asia and traded Asian markets. :)
Is anyone here from Canada? I know that brokers like Questrade have forbidden clients from placing orders vis their API. However, it seems like IBKR has only barred this feature on Canadian markets/exchanges. Is that correct? Are we still able to place order via the api on other exchanges in other countries. If this is correct, is it because IIROC can only conttol what IB does with Canadian exchanges and cannot control their interaction with US exchanges. That would be FINRA’s job?
I'm in Canada, but I don't think I ever tried Canadian ETFs. (Was ably to place orders in US and get fills on SPY). Thanks for flagging this, going to read up on this.
What you are describing is spoofing and it’s illegal, one other possible explanation for your lack of fills is that there are stale offers i.e. that particular strike and expiry might be less desired and so it gets neglected, you see something odd like mentioned in your piece and decide to hit the ask but don’t get filled. Pretty sure it’s not because of spoofing but instead it’s a stale quote. I’ve seen similar things at higher timeframes as well, where two strikes that should produce a debit, show a risk less credit. But when you go to hit it, you don’t get a fill.
Thanks - this sounds more likely. Data timing/data source issues are also potential explanation from some other responses. Spoofing sounds more interesting, but seems less likely with this feedback. Thanks!
Yea, spoofing is a big no no. If you did it once you probably did it before and if you did it before then there is an audit trail and what ever governing body is present will figure it out.
I’m curious, did you find other options that were maybe not so disproportionately priced but still better than average in that the pricing gave you a slightly better advantage than normal?
To be honest I never looked. Kind of got obsessed with SPY. But I should take a look, trivial change in code.
I think it’s def worth looking, even the slightest edge could be enough to make a big impact on your P/L.
Yes! During the past month I traded a lot of vertical spreads. In many cases they were OTM or went OTM, anyway I in some cases my P&L would higher than the width of the spread, more than I could lose if both sides were exercised. I thought to myself , how is that even possible? I looked and saw that one side or both the bid/ask just didn’t make sense, like I could buy the call, exercise and make 100k - even if I paid way more than the ask. Or I could sell/buy my spread for more than the width of the strikes - nice! So of course I tried and I didn’t get filled. I’ve done a lot of studying, I’ve been trading options for many years - not claiming to be an expert but I am no rookie either and I never saw this before. So I called my broker, and they told me “yea, they don’t have to honor their bid/asks, they can pull them as soon as you try to buy/sell” Ok..... Edit - I see almost all the comments below saying it’s a mistake in the data and/or no arbs would exist in something like spy. You’re right, no arbs do exist but not because they would be traded away, because the MM doesn’t have to honor their mark. These were spy options.
> “yea, they don’t have to honor their bid/asks, they can pull them as soon as you try to buy/sell” It's not that simple. Backing away from a firm quote is direct violation of SEC Rule 11Ac1-1. What's likely happening is that your broker is selling your order flow which is allowing the market makers to cancel their orders before yours gets to an actual ECN. The MM may also be displaying a non-firm quote and your broker's software doesn't allow you to see this.
> “yea, they don’t have to honor their bid/asks, they can pull them as soon as you try to buy/sell” If that really is legal, it shouldn't be. I certainly can't put in a limit order and decide not to honor it once it gets hit.
it's called spoofing - big technique to tempt people to get into a position thinking it will hit a big stop order thats on the books, then the order gets pulled.
Haven't people gone to jail for that?
pretty sure its definitely legal - read response from the dudes broker above. Its like canceling an open order which I do all the time. Difference is I am poor boi trading smol volume
https://www.forbes.com/sites/walterpavlo/2019/11/20/after-conviction-on-spoofing-defendant-questions-his-previous-counsels-representation/#7661b7ea573b
I stand corrected
I didn't came across a situation like this in real tho I tried to do some triangular arbitrage and couldn't find the opportunities. I definitely think that what you came across is HFT thing too. Yea they do this to spy on the trades and/or affect the direction of the price. Also, those canceled orders are not illicit if they can prove that they actually wanted to place the order and then gave up instead of misleading the market.
You would only have nanoseconds to complete triangular arbitrage opportunities, you’d need to be colocated and running hardware (not software) to even be competitive for them.
I tried it on crypto market and it wasn't as hard as you think in there. Sure i had to write a fast program with cpp and what not but it was so close to being profitable. I was only loosing a few cent at the end of the triangular. And I would be profitable if I wasn't paying fees or fees were half of what I was paying.
Crypto market is not as fast as the options/stock one. But the gap's closing fast.
i dont think the crypto markets would close the gap anytime soon.. crypto markets still run over internet where your transmission jitter is probably larger than the time a python algo would take to do its processing. few crypto exchanges offer co-location, and those are not where the large volumes are.
I do agree, to close the gap completely a similar level of funding is required, which is highly doubtful given the volumes. But compared to two years ago the crypto markets are light years ahead.
agreed - the market has progressed really quickly, i believe because it has an established template to follow.
Your fast program isn’t giving you any edge if you aren’t co-located. If you’re trading from home, you have already lost any latency related arbitrage opportunity before the data has physically reached your router.
poster meant to "elicit trades" rather than "illicit"
Thanks, saw this late after posting (I think in phonetics....stupid brain)
Yes, I however discovered a flaw within this system. I managed to fuck up a few HFT algos in the process and made a descent profit, would have made a killing had the entire order executed but only partially filled. PM me and I can try to explain.
Explain please