Nanex ~ 16-Oct-2012 ~ Destroying Options Pricing the HFT Way
At the request of one of our customers, we took a detailed look at option quotes for
October 10, 2012, which was an unremarkable, quiet trading day. We were shocked to see
the number of fake quotes, and how often available capacity was exhausted! On an inactive
day. There doesn't appear to be anyone actively monitoring the aggregate number of option
messages per second. What will happen when a shock to the system multiplies activity
by a factor of 10 or more?
See also our analysis of option quotes for October 26, 2012.
The table below shows quote and trade statistics for the entire session. It compares
all 7,834 NMS stocks, with Apple stock and Apple Options.
There were over 600 million Apple Options quotes, which is
20% more quotes than all NMS stocks combined!
|All NMS Stocks
We also found:
There were 9 options exchanges and approximately 528,000 individual option contracts on that day. Network capacity is currently set at 6 million messages/second. That allows
about 10 quotes per option contract per second. With 9 exchanges, each exchange can
send no more than 1 quote per option contract per second at the same time. Yet there
were 4,754 instances where one Apple option contract had over 1,000 quotes in a second.
If all contracts quoted at that rate, there would be 528 million quotes/second.
- 633 instances (seconds) that had over 100,000 Apple option quotes in a single second!
- 10,907 instances (seconds) with quotes in 2,000 or more different Apple option contracts.
- 4,754 instances of more than 1,000 quotes in one option contract in 1 second.
- 6,892 option quotes in one option contract in 1 second.
1. Total Number of Apple Option Quotes and NBBO Quotes per second.
This chart indicates saturation when the number of quotes in 1 second exceeds 140,000.
2. Total Number of Apple Option Quotes, NBBO Quotes, and Trades per second (log
Note the saturation limit shows up clearly.
3. Total Number of different Apple option contracts quoted each second and for
Note: It is odd that the maximum number of different Apple option contracts per second
hits a wall at about 1470, even though the total number of different Apple option contracts
for the session is hundreds higher.