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I don't understand how brokers offer options trading without also offering an options analytics package (vol, greeks, etc.) or are people using some third party

by cascom 8y ago

I don't understand how brokers offer options trading without also offering an options analytics package (vol, greeks, etc.) or are people using some third party service and just coming to robinhood for execution? seems like its just leading the lambs to the slaughter...

defen 8y ago
Robinhood is the dumbest of dumb retail money. I suspect that a significant number of options users on there treat it more like gambling (OTM weeklies) than investing.
jonknee 8y ago
> Seems like its just leading the lambs to the slaughter... Well why do you think they aren't charging commissions?
- cascom 8y ago
  fair point!
- freefal 8y ago
  You are exactly right. The electronic options exchanges facilitate market makers paying brokers for order flow. The broker can send the order to the exchange with a field denoting their preferred market maker. In the absence of that field being populated, orders are allocated either by size (% of the best bid) or by time (who established the best bid first). If that field is populated and the preferred market maker is on the best bid or best offer, he receives an outsized allocation of the order. The market maker keeps track of the number of contracts it has traded with that broker where the field was set and pays the broker whatever fee they've contractually agreed upon multiplied by the number of contracts. The market maker can afford to do this because retail order flow is highly profitable to trade against (it's "dumb money"). In fact when a market maker runs a look back analysis on the profitability of his trading, he will see that his trading with other market makers and institutional orders results in almost no profit, whereas the retail flow is highly profitable. This "payment for order flow" (PFOF) is not shared with the customer. So even if the customer pays no fee to trade, Robinhood can still earn a profit. Source: Was an electronic options trader
  - ccostes 8y ago
    > Source: Was an electronic options trader So did you make your millions and retire to an island, or did the options trading not work out?
  - mfringel 8y ago
    Why is retail flow specifically profitable? Nearly entirely market orders? Something else?
throwawayad7d9f 8y ago
"brokers" generally don't. Are there any other than Robinhood? I've tried quite a few and all have greeks, volatility etc.
pgodzin 8y ago
It does provide the volume and greeks: https://cdn.discordapp.com/attachments/290856853204631552/413751458106966016/Screenshot_20180215-123952.jpg https://cdn.discordapp.com/attachments/290856853204631552/41...

by cascom 8y ago

defen 8y ago

Robinhood is the dumbest of dumb retail money. I suspect that a significant number of options users on there treat it more like gambling (OTM weeklies) than investing.

jonknee 8y ago

> Seems like its just leading the lambs to the slaughter... Well why do you think they aren't charging commissions?

cascom 8y ago
fair point!
freefal 8y ago
You are exactly right. The electronic options exchanges facilitate market makers paying brokers for order flow. The broker can send the order to the exchange with a field denoting their preferred market maker. In the absence of that field being populated, orders are allocated either by size (% of the best bid) or by time (who established the best bid first). If that field is populated and the preferred market maker is on the best bid or best offer, he receives an outsized allocation of the order. The market maker keeps track of the number of contracts it has traded with that broker where the field was set and pays the broker whatever fee they've contractually agreed upon multiplied by the number of contracts. The market maker can afford to do this because retail order flow is highly profitable to trade against (it's "dumb money"). In fact when a market maker runs a look back analysis on the profitability of his trading, he will see that his trading with other market makers and institutional orders results in almost no profit, whereas the retail flow is highly profitable. This "payment for order flow" (PFOF) is not shared with the customer. So even if the customer pays no fee to trade, Robinhood can still earn a profit. Source: Was an electronic options trader
- ccostes 8y ago
  > Source: Was an electronic options trader So did you make your millions and retire to an island, or did the options trading not work out?
- mfringel 8y ago
  Why is retail flow specifically profitable? Nearly entirely market orders? Something else?

throwawayad7d9f 8y ago

"brokers" generally don't. Are there any other than Robinhood? I've tried quite a few and all have greeks, volatility etc.

pgodzin 8y ago

It does provide the volume and greeks: https://cdn.discordapp.com/attachments/290856853204631552/413751458106966016/Screenshot_20180215-123952.jpg https://cdn.discordapp.com/attachments/290856853204631552/41...