Secret 81DON’T TIP YOUR HAND—BEWARE OF SIZE
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A classic error made by many option players is that they
enter too large an order, resulting in poor executions or fills.
Whenever you see an option quote such as 2 at 2.50, at that
moment the asked price of 2.50 is guaranteed for 10 contracts
and the bid price is guaranteed for 10 contracts. We call that “10
up on a side”. (One exchange suggested that they were going to
20 up on a side.) If you enter a larger order, the market makers
will adjust their bid and asked price against you.
As a result, try to avoid tipping your hand; enter orders of a
maximum of 10 contracts at a time. Once one order is executed,
you can enter another. Eventually the market makers will catch
on to your play, but initially you will get better prices.
A classic error made by many option players is that they
enter too large an order, resulting in poor executions or fills.
Whenever you see an option quote such as 2 at 2.50, at that
moment the asked price of 2.50 is guaranteed for 10 contracts
and the bid price is guaranteed for 10 contracts. We call that “10
up on a side”. (One exchange suggested that they were going to
20 up on a side.) If you enter a larger order, the market makers
will adjust their bid and asked price against you.
As a result, try to avoid tipping your hand; enter orders of a
maximum of 10 contracts at a time. Once one order is executed,
you can enter another. Eventually the market makers will catch
on to your play, but initially you will get better prices.