Nanex Research

Nanex ~ 01-Aug-2013 ~ Extreme Options

On August 5, 2013, a new Options Exchange called Gemini will go online. Let's hope the new interaction between the other 11 exchanges will run without tripping a high frequency trading algo to run amok and generate, say 1 billion quotes a day in 1 symbol. Or causes excessive quoting above the already outrageous current rate of 10,000 quotes per trade.

We created the charts below by sifting through 7 trillion option messages (trades and quotes) between 2006 and July 23, 2013, looking for instances of extreme trading and quoting. For extreme trading, we looked for 50 or more trades in a single option contract in 1 second. For extreme quoting we looked for 3,000 or more quotes in a single option contract in 1 second. Note, there are currently over 1/2 million active option contracts. We then plotted each of these instances as circles and made the size of the circles relative to how many trades or quotes appeared in each event. The larger the circle, the more significant the event.

When we plotted the results, several things stood out. For extreme trades, there was a monster event on one day in September 2011. This event lasted just 1 second, and included options in many large cap stocks (AAPL, SPY, QQQ). The other interesting find is how extreme option activity showed up in earnest in August 2011 - which was an extremely volatile trading period.

1. Showing 16,340 Instances of Extreme Trading in U.S. options - One event stands out, can you spot it?
That big ball is from one second of enormous trading activity in options for AAPL, SPY, and a few other large cap stocks. Pretty sure something didn't go according to plan (or did it?).

2. Same as chart 1 above, but scaled to see more detail (>50 trades/second in a single option contract).

3. Showing 20,789 Instances of Extreme Quoting in U.S. Options (>3,000 quotes/second in a single option contract).

Nanex Research

Inquiries: volatility