I haven't been able to find an answer to this question, so I though I'd try posting it here. If I enter a limit order for a (stock) option spread on a couple of fairly illiquid options (where the bid/ask spreads are a few dollars apart), does the broker try to work the bid/ask spread or does it just wait to see if the market price eventually hits my limit price, then execute it? I'm just wondering whether I would have a better chance of getting filled if I entered each leg of the spread separately, say right in the middle of the bid/ask, rather than entering in a spread order with a limit right in the middle of the bid/ask spread (granted, I understand there's a big risk that only one leg of the spread would get filled if I did it separately).
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posted: Oct. 14, 2016 @ 2:18p
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posted: Oct. 14, 2016 @ 4:23p
I think IB does but I don't have an authoritative answer. It's going to vary by broker whether they represent your order in the complex order book or not. I'd say to enter your spread order and if you get filled at mid, then the answer is yes.
In theory you should place the spread order rather than the separate legs, since it lets the party on the other side who wants the spread avoid the risk of getting only one leg before the other moves. In practice, I have no idea.
Seems like another reason to avoid options. The little guy gets screwed on fills, while someone doing 100-1000 lots can shop it around on the phone. Although IB does advertise a desk that will do it for large orders, despite being a discount broker.
ETA- Look like a yes for IB, at least if the product is traded at ISE.
When your spread order is transmitted, IB SmartRouting will compare native spread prices when available (i.e. ISE) with implied spread prices from all available option and stock exchanges and route each leg independently to the best priced location(s). If your order is marketable, IB will route the spread order or each leg of the spread independently to the best possible venue(s). Non-marketable spread orders native to the ISE on a single underlying will be temporarily routed to the ISE book, while non-marketable orders that are not native to the ISE will remain at IB. From that moment on, IB SmartRouting will continuously evaluate changing market conditions and will dynamically route and re-route based on this evaluation to achieve optimal execution.
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