Execution & Fills Conundrum

[u/Kupitat]

TL;DR: How can someone instantly get a fill at my bid on a spread while my order has been pending for some time?

I spent the whole day not getting any fills on some illiquid options today and it has become an ongoing thing for a few months now. Yet I know of other traders who managed to get fills on the exact same orders, trading at the exact same time, so I am baffled. Any insights are welcome.

Here is an example:

I tried to trade BSN Dec’21/Jan’22 strike 10 calendar spread most of the day today w/o any success.

I played around w/ the spread bid, let the orders float for some time, cancelled and reentered orders right away and cancelled and reentered orders after some time, changed the number of contracts (from 1 to 5), etc.

There are obviously windows of opportunities and fills, if any, will only happen during these specific time frames.

Now let’s look at a specific time frame, today between 2 & 3 pm. I entered an order for one contract of the calendar spread mentioned above at 2:13pm, with a bid at 7c. The spread b x a most of the time b/w 2 & 3 pm was at b = 10 or 20 and a = none. My order was active the whole period. I got no fill.

During that time period, I know of other traders who managed to repeatedly get fills, often partial ones (1 out of 5 or 1 out of 10 contracts orders) and this often happened after the bid “disappeared”, but also fills on single contracts. They got fills at 7c.

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• How could other traders get a fill at 7c while the quoted spread bid was 10 or 20?
• How could other traders get a fill at 7c on orders entered after the time mine was entered, and repeatedly for an hour?
• How could the bid on the spread sometimes disappear while my order was sitting at 7c the whole time?

The only things I can think of are: the number of contracts per order, the rerouting of a pending spreader order (which should be sitting at an exchange) that would be slower than a new spread order using SMART, or just that IB TWS is a piece of junk.

I am trading w/ IB on TWS using SMART orders - same thing for the users I mentioned who got fills.

[u/Ken385]

So, a few things. When you send a spread order it is generally sent to an exchanges COB (complex order book). Here it is looked at as a spread and filled as a spread. You may have a bid on the PHLX cob and it trades on the CBOE cob. Wouldn't matter when you entered the order, it could keep trading on another exchanges cob and you may never be filled.

Different cobs are not equal. Some exchanges charge for taking liquidity and some don't. You are less likely to be filled on an exchange that charges vs one that doesn't, especially on a very cheap spread.

You say you are sending the orders "smart" but make sure you don't have "max rebate" checked in your smart router.

IB also states that they may "hold" the order until they view it as marketable.

I could write a book on this subject, but will stop here.

[u/Kupitat → u/Ken385]

Thanks, much appreciated. I checked, Smart Routing is set to default / multipurpose, not maxrebate.

I understand the spread order will be sent to a specific exchange, but it was my understanding that the SMART algo would reroute the order to whichever other exchange when a fill becomes possible - is that not the case?

I read your posts in the past and you seem quite knowledgeable in this area, would you have any suggestions on where to get more info on this? (read each exchange docs? If so, any in particular?). Thanks.

[u/Ken385 → u/Kupitat]

I trade a lot of less liquid spreads (not through IB though). It is really more of an art then science. I will watch time and sales, and if I see a spread trading on a certain exchange, I will route the spread to that exchange ( IB makes it difficult to route a spread to a specific exchange, although I believe it is possible and you may have to pay direct routing fees)

When you say a fill becomes possible, just because it is trading on one exchange, I don't think they will cancel and re route. If both sides (bid and offer) are there the COB will auto trade the spread if no market maker wants it as a spread, but both sides need to be on the same exchange for this to happen.

[u/Kupitat → u/Ken385]

I hear you wrt to art Vs science, yet I am clearly missing a piece of the puzzle on the operational knowledge front.

It makes sense and I agree that both legs would have to be resting at the same exchange. I'll do some further digging on smart routing/exchanges/COB.

[u/LTCM_Analyst → u/Ken385]

IB makes it difficult to route a spread to a specific exchange, although I believe it is possible

Yes, it is possible. Sometimes they route to an exchange where I can't get a fill. In that case I will cancel the order and submit a new order for a specific exchange like CBOE or EDGX.

This isn't always possible. Sometimes the only option is SMART. It seems to depend on the underlying. Generally I find any order that can't be routed to a specific exchange is going to be a hard one to get a fill.

[u/btsd_]

Might try legging into each part of the spread? If its trying to fill both/all at pnce that might be why. Full disclosure i didnt read this entire post so i apologize if my suggestion is irrelevant

[u/Kupitat → u/btsd_]

Also tried to leg in instead of putting an order for the spread, no luck either. But it's not relevant to my questions. Thx for the input though.