What does no bid/ask imply?

[hissho]

hi all

just wondering what does it imply in terms of MM intentions when you can't find too many bid/ask option spreads on a stock.

e.g. i just had a look at WPL. There's almost none available on August and Sep and very few on June and July. What does it imply? not many people are interested in this stock? what could MM be doing? i'm totally lost...

attached is a screenshot for Sep...

any comments appreciated,
cheers

 

[sails]

Hissho, just wondering if you took that screen shot during options lunch break from 1-2pm. However, I've found it's very difficult to go too far out in time with the Aus market unless trading something like BHP.

Each month the ASX put out trading stats and if you scroll down to page 5 on the following pdf, it lists the top most liquid options http://www.asx.com.au/investor/pdf/notices/2006/Clm09806.pdf

Liquidity can get get very frustrating with Aus options!

 

[Magdoran]

Hello hissho,


Margaret is quite right... Have a look now, the lunch break is over, and I can see lots of bid and ask offers in the system now... some are 5 strikes deep, which is about right for WPL.

If you trade flex options, sometimes you won't receive a bid and ask, or this will flash up on request, or if you put an order in.

If you're going to trade this way, you really need a very good grasp of options theory and practice, not to mention good modeling skills supported by reliable software. Quite risky to do this since the market maker sets the spread in low open interest strikes.


Regards


Magdoran

 

[hissho]

Thanks Margaret and Rohan you are absolutely right!

btw what do you mean by "trade flex options"? i'm just looking here and there with curiosity, not "going to trade this way"

cheers

Hello hissho,


Margaret is quite right... Have a look now, the lunch break is over, and I can see lots of bid and ask offers in the system now... some are 5 strikes deep, which is about right for WPL.

If you trade flex options, sometimes you won't receive a bid and ask, or this will flash up on request, or if you put an order in.

If you're going to trade this way, you really need a very good grasp of options theory and practice, not to mention good modeling skills supported by reliable software. Quite risky to do this since the market maker sets the spread in low open interest strikes.


Regards


Magdoran

 

[Magdoran]

Hello hissho,


Go to the ASX website and do a search for "Exchange Traded Option Stocks". The list denotes stocks with market maker obligations that are optionable, and also lists "flex" stocks where the market maker is not obliged to make a market. There is a description of what this all means in the document.

There is some danger in flex options of the market maker widening the spread considerably, or even not transacting with your offer either to enter or exit. Hence there is considerable risk in trading in these, and strategies based on this kind of trade really need significant moves, or longer term position/investment objectives to improve the chances of success.

It also helps to know how to position your trade at the right time and select the right strike(s) to minimise the width of the market maker spread, based on price action and activity in both the stock and options – there is a lot more to this as you can imagine. I use a lot of options modeling and price/time and volatility forecasts when I trade these. Definitely not for newbies.


Regards


Magdoran

 

[bullspread]

When the market is not quoting, it is possible to tempt a trade from someone by putting in your offer. You can be lucky however as the others have stated, market must have been out to lunch over the break.

Cheers
BullSpread