definition of automated trading for options

[dr_trick]

hi all,

i recall reading somewhere that CBOE does not permit automated trading of options. it may be a while back... i'm not sure if this is still the case, for now i want to assume that it is.

i want to liquidate the option leg on a covered call. the option is now deep ITM and the current spread is quite wide. i want to try repeatedly sending Fill-Or-Kill orders to buy back the calls at the current bid (probably at 3-5 minute intervals).

my question is this; will the exchange consider this as automated trading? i don't want to risk being banned from trading by the exchange.


thanks.

 

[wackypete2]

If you are a full trading CME member you may have some restrictions on that. You need to check with CME. If you are a home gamer/retail trader there's nothing stopping you from programming your own auto trader that sends buy/sell orders through your broker. If your broker restricts you due to "clogging up the system" then find another broker.

I don't see how your example would be considered automated trading.

Peter

 

[dr_trick]

If you are a full trading CME member you may have some restrictions on that. You need to check with CME. If you are a home gamer/retail trader there's nothing stopping you from programming your own auto trader that sends buy/sell orders through your broker. If your broker restricts you due to "clogging up the system" then find another broker.

I don't see how your example would be considered automated trading.

Peter

thanks... i'll clear from my broker.


cheers

 

[daveyc]

just curious.... do you need to keep the stock? did you sell the calls in the money? i thought the goal for covered call sellers was to have the stock called? i can only think of a couple of reasons for keeping the stock.

i didn't know that automated trading of options was prohibited, is this new? thinkorswim provides a bunch of autotrading newsletters. what you have described above is certainly not automated trading.

 

[rmorse]

hi all,

i recall reading somewhere that CBOE does not permit automated trading of options. it may be a while back... i'm not sure if this is still the case, for now i want to assume that it is.

i want to liquidate the option leg on a covered call. the option is now deep ITM and the current spread is quite wide. i want to try repeatedly sending Fill-Or-Kill orders to buy back the calls at the current bid (probably at 3-5 minute intervals).

my question is this; will the exchange consider this as automated trading? i don't want to risk being banned from trading by the exchange.


thanks.

Automated trading is permitted. All the members do it. As a "customer",what you can't do is make two sided markets to open. You orders go in front of CBOE market makers, so you customer market making is not allowed. You can make two sided markets on the exchanges with make or take models like NYSE ARCA and NASDAQ. Also, if your entering a large number of orders vs fills, you can get hit with cancellation fees. You can avoid that by claiming to be a "Professional Customer". You will pay higher execution fees on the exchanges($0.20 vs $0.00), but won't get cancel fees.They describe a "Professional Customer" as a non broker dealer that enters over 390 orders per day on average over a quarter. If you're running an automated options platform, you can hit that mark in the first two minutes.

The only concern you should have in what you described, is to ask you broker about cancellation fees. Some brokers don't charge their clients and eat the fee on the retail level.

Bob