5 ms·

This is how options trade; with periodic auctions

JumpCrisscross 2y ago
> how options trade; with periodic auctions Former options trader. This improves dealers’ profits. Consider a once-a-day auction. The person who puts in an order at 9:35AM incorporates five minutes’ information. The person who does so at 3:55PM, all but five minutes’. Anything material that happened at Noon is extracted from the early order and benefited to the late one. If the orders are unsealed, the later order can incorporate the early order’s existence. With options, that means the high-speed late order has better information about the underlying stock than the orders preceding it. So it generates risk-free profits from them.
- stvltvs 2y ago
  What if the orders were sealed and the auction happened much more frequently, like every minute? It doesn't seem like late traders would get much of an advantage.
  - JumpCrisscross 2y ago
    > What if the orders were sealed and the auction happened much more frequently, like every minute? Reality remains real time.
- feralsandwich 2y ago
  What if the auction gets resolved at a random (uniformly distributed) point in time in some small time interval?
  - JumpCrisscross 2y ago
    > What if the auction gets resolved at a random (uniformly distributed) point in time in some small time interval? I'd put in lowball bids and ludicrous (but plausibly deniable) offers and wait for the unreasonably-short windows. The solution to this problem is people not wanting immediacy. (Same with scalpers.) But people like immediacy. Unfortunately, there is also political capital in railing against those who provide that immediacy. In a way, it's a stable socioeconomic system: HFT provides liquidity, market partiipants take it, activists rail against it, regulators complain and win the activists' favour.
- mrcode007 2y ago
  I don’t know what you’ll are smoking… :-) https://cdn.cboe.com/resources/membership/US_Options_Auction_Process_Specification.pdf#page4 https://cdn.cboe.com/resources/membership/US_Options_Auction... And: https://www.cboe.com/us/options/trading/complex_orders/ https://www.cboe.com/us/options/trading/complex_orders/

> how options trade; with periodic auctions Former options trader. This improves dealers’ profits. Consider a once-a-day auction. The person who puts in an order at 9:35AM incorporates five minutes’ information. The person who does so at 3:55PM, all but five minutes’. Anything material that happened at Noon is extracted from the early order and benefited to the late one. If the orders are unsealed, the later order can incorporate the early order’s existence. With options, that means the high-speed late order has better information about the underlying stock than the orders preceding it. So it generates risk-free profits from them.

stvltvs 2y ago
What if the orders were sealed and the auction happened much more frequently, like every minute? It doesn't seem like late traders would get much of an advantage.
- JumpCrisscross 2y ago
  > What if the orders were sealed and the auction happened much more frequently, like every minute? Reality remains real time.
feralsandwich 2y ago
What if the auction gets resolved at a random (uniformly distributed) point in time in some small time interval?
- JumpCrisscross 2y ago
  > What if the auction gets resolved at a random (uniformly distributed) point in time in some small time interval? I'd put in lowball bids and ludicrous (but plausibly deniable) offers and wait for the unreasonably-short windows. The solution to this problem is people not wanting immediacy. (Same with scalpers.) But people like immediacy. Unfortunately, there is also political capital in railing against those who provide that immediacy. In a way, it's a stable socioeconomic system: HFT provides liquidity, market partiipants take it, activists rail against it, regulators complain and win the activists' favour.
mrcode007 2y ago
I don’t know what you’ll are smoking… :-) https://cdn.cboe.com/resources/membership/US_Options_Auction_Process_Specification.pdf#page4 https://cdn.cboe.com/resources/membership/US_Options_Auction... And: https://www.cboe.com/us/options/trading/complex_orders/ https://www.cboe.com/us/options/trading/complex_orders/