Funny option trades - Looking for explanation

Investing / Others
1

So, a while ago I played around with options on a US total market ndex. I predominantly passively buy- and hold, but on one portfolio, I do the occasional side bet or experiment.

This ETF is one with billions in AUM, but only very little option volume, monthly strike dates and steps in the range of 5%.

IB’s option chain showed no ask prices for OOM puts, only ridiculously priced bids (as per my perception and mental calculation. I don’t pay for market data or don’t like these Greek letters).

The ETF price was around 120.The bids for a 115 Put in less than a week’s time was 2. 2 bucks? I’ll sell 10 for 0.5. It was filled immediately. I think there was some warning as in “are you sure?”. Absolutely. I totally was.

In portfolio view, imagine my dismay when the estimated value of my new short position showed a red value. Why would it show a market price? There was no market for this ETF. Anyway, I didn’t like that. So, I placed a buy order at 0.15, which got filled immediately, again.

Well, that was fun. That’s where curiosity took over, I rubbed my hands together and told myself “let.me.see.now”. I tried it again, with more than 10 Puts this time, and it worked again. Sell for .50, buy for 0.15.

Had to sell for 0.45, and buy back at 0.20 the 3rd or 4th time, but could repeat that a few rounds until my presence was requested for bed time.
Another few rounds the day after, again starting at 0.5 after which the offering changed to 1-dollar steps and my orders trades didn’t get executed.

Sorry for the long text. I tried to add some satiric elements for my entertainment, but the questions are serious: Can anyone explain what happened there? Who or what did get screwed? How come there’s no ask prices on display, yet both sell and buy orders get filled right away? Some glitch on the market side or some algorithm?

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2

I don’t think market makers have to make their bids public, they can also fill things on demand, right?

3

I have no clue, that’s why I ask.

My naïve interpretation is that this ETF is not the place to go for option traders. There are quite liquid, daily options on SPY. Not the same thing to total US market, but close enough.

I’d like to understand the mechanics behind why I could sell for 50 and buy for 15 less than a minute later. And so on. Doesn’t make sense to me :wink:

4

A glitch in the matrix, get rich while you can :money_mouth_face:

5

That was my first impression. :rofl:

Not quite honest pay for honest work, but I could stomach it another day if I could just understand who I was up against.
Maybe some of those “stay-at-home mom makes 25k in 1 hour of work. Subscribe here” adds the internet blessed me with where up to something.

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6

If it works, I would cycle the other way around: Buy for 0.15, sell for 0.5. Much less risk if nobody shows up for the second trade.

7

Maybe some odd lots, rounding error technical issue. Interesting nevertheless :grin:

8

Fair point. I skipped the “don’t try this at home” message, assuming y’all take of your own risks.
That whole thing started off as a covered position out of curiosity.

I can get carried away with things, up to a point where I blend out each of those option is multiplied by 100 and adding up to quite some exposure, albeit short-time in these trades.

As they say, we all have our cross to bear. :woman_shrugging: I remain flabbergasted how this worked, though.

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