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A lot of automated trading is arbitrage and market making, where such a trade would not really be an issue. Regardless, option trading tends to have human trad

by pnako 7y ago

A lot of automated trading is arbitrage and market making, where such a trade would not really be an issue. Regardless, option trading tends to have human traders behind the wheel, and they're trained to figure out what's going on (trading options is similar to playing poker).

totalZero 7y ago
A reasonably sized trade of wing options (far-OTM calls or puts) should be expected to move the volatility implied in the prices of options at and around that strike. I would call this "vol impact" or "skew impact." Go buy 5k AAPL Jul 250P tomorrow morning, and see what happens to the implied volatility of the offer on that contract by the time the market closes that same day. Market makers are sensitive to wing trades, precisely because pricing skew is more of an art than a science. Trading away from spot can have a substantial impact on the way the implied volatility surface looks. And this can affect trades of other maturities and strikes. Trading options, for me, is nothing like playing poker. Poker doesn't have an underlying storyline the way companies do. Nor are there catalyst dates in poker.
- pnako 7y ago
  It can make a big visible bump in a volatility surface, but experienced option traders are trained not to react like robots, but think instead of following blindly (otherwise it would be very easy to fool them, since it's a relatively illiquid market in which anyone can have a lot of leverage). In that sense it's similar to poker; you don't have all the information to analyze what other players do. In this particular case, is it an informed trader or a noise trader?
- deleted 7y ago
  [deleted]
- hnews_account_1 7y ago
  5k contracts is a massive trade my dude. At a multiplier of 100, that's a notional volume of 500k shares. That ought to move anything. Even AAPL as market makers balance their books. But I mean, generally these are one leg of a 4 leg option trade strategy. So it won't actually be a big net notional exposure in most cases (apart from having trades on the underlying to hedge themselves out).

by pnako 7y ago

totalZero 7y ago

A reasonably sized trade of wing options (far-OTM calls or puts) should be expected to move the volatility implied in the prices of options at and around that strike. I would call this "vol impact" or "skew impact." Go buy 5k AAPL Jul 250P tomorrow morning, and see what happens to the implied volatility of the offer on that contract by the time the market closes that same day. Market makers are sensitive to wing trades, precisely because pricing skew is more of an art than a science. Trading away from spot can have a substantial impact on the way the implied volatility surface looks. And this can affect trades of other maturities and strikes. Trading options, for me, is nothing like playing poker. Poker doesn't have an underlying storyline the way companies do. Nor are there catalyst dates in poker.

pnako 7y ago
It can make a big visible bump in a volatility surface, but experienced option traders are trained not to react like robots, but think instead of following blindly (otherwise it would be very easy to fool them, since it's a relatively illiquid market in which anyone can have a lot of leverage). In that sense it's similar to poker; you don't have all the information to analyze what other players do. In this particular case, is it an informed trader or a noise trader?
deleted 7y ago
[deleted]
hnews_account_1 7y ago
5k contracts is a massive trade my dude. At a multiplier of 100, that's a notional volume of 500k shares. That ought to move anything. Even AAPL as market makers balance their books. But I mean, generally these are one leg of a 4 leg option trade strategy. So it won't actually be a big net notional exposure in most cases (apart from having trades on the underlying to hedge themselves out).