Complex Book - Market Analysis

All of the positions that we trade here in the G.O room are complex option trades. They use several legs that need to be executed simultaneously, so in order for those orders to be processed correctly the exchanges run an additional complex order book for options. This order book is completely separated from the single options one, so liquidity and bid/ask spreads of individual options are irrelevant here (at a higher level of abstraction of course). In this complex book you will see the trades listed as a single entity (butterfly, calendars, condors, etc) and by definition it is a very iliquid book (as most of the time MM's only react to the orders instead of posting quotes beforehand) however this lack of apparent liquidity is just an illusion as the arbitrage opportunities are too tasty for option dealers to stay away from it so liquidity appears out of thin air as soon as your trade is posted here.

One of the reasons I trade SPX options almost exclusively is that the real-time liquidity for the complex order book is pretty much unlimited. I have traded very complex positions on the thousands of contracts that take only a few seconds to be absorbed by the market. So don't worry about liquidity or bid/ask spreads of the individual options as our positions don't really care about them at all.

Leo Valencia hosts the Gamma Optimizer options service at ElliottWaveTrader.net.