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Regarding the "options people not being as technically sophisticated" One of the stories from the former PHLX Options Exchange, now part of the Nasdaq umbrella

Regarding the "options people not being as technically sophisticated" One of the stories from the former PHLX Options Exchange, now part of the Nasdaq umbrella is that their rapidfire price protection feature was one of the killer features that was a competitive advantage over the other options exchanges back in the day. Now a days, all the major options exchanges have this feature. A market maker required to quote in say 80% (by self-governance rules) of options in a given underlying has a lot of quotes to update when the market moves. AAPL has 1000+ options, so a market maker may be obligated to quote at least 800 options books. When the market moved, there would be 800 options to update. With order/ack latency around ~30-50u today, but around 400u-1ms 10 years ago, it could take almost half a second to 1 second to get those quotes updated. In that eternity, a fast trader could swoop in and execute against the old quotes to their advantage. Rapidfire implemnted an atomic cancellation of orders if too many options executed on a single side only such as only the bids getting executed. This significantly minimized the risk of getting eaten alive on say a couple hundred contracts every single time the market moved.

bd_at_rivenhill 11y ago
I know that ISE had some sort of automatic cancellation feature from the beginning or very close to the beginning, so not sure if PHLX was the originator of this idea. Also, nearly all electronic options exchanges have a "mass quote" feature that allows changes in prices over a large number instruments at the same time. I would expect that this feature is available on every US exchange and only a few overseas exchanges lack it, and managing the generation of mass quotes vs exchange message rate limits is one of the more complicated parts of designing option quoting systems. Finally, there is also a "cancel by underlying" feature that cancels all options on a specific underlying; if it is the case that the mass quote doesn't allow quotes to be cancelled (i.e. modified to 0 size), then the usual approach is to cancel by underlying and then immediately requote at the new price level.

bd_at_rivenhill 11y ago

I know that ISE had some sort of automatic cancellation feature from the beginning or very close to the beginning, so not sure if PHLX was the originator of this idea. Also, nearly all electronic options exchanges have a "mass quote" feature that allows changes in prices over a large number instruments at the same time. I would expect that this feature is available on every US exchange and only a few overseas exchanges lack it, and managing the generation of mass quotes vs exchange message rate limits is one of the more complicated parts of designing option quoting systems. Finally, there is also a "cancel by underlying" feature that cancels all options on a specific underlying; if it is the case that the mass quote doesn't allow quotes to be cancelled (i.e. modified to 0 size), then the usual approach is to cancel by underlying and then immediately requote at the new price level.