1

I am curious how to gain insight into whether an option transaction was buyer or seller initiated, ie. "Buy to Open" or "Sell to Open".

What I am looking for is not from a common retail investor perspective, but what explicit credentials/platforms you would need to have in order to know that an option transaction, that has both a buyer and seller, was buyer or seller initiated?

  • I'm voting to close this question as off-topic because the OP states he is not interested in the perspective of the retail investor. – Rupert Morrish May 15 at 20:51
1

... what explicit credentials/platforms you would need to have in order to know that an option transaction, that has both a buyer and seller, was buyer or seller initiated?

For all option trades, every buy is "buyer initiated" every sale is "seller initiated".

If Open Interest increases, the contract must involve a "Buy to Open" and a "Sell to Open".

If Open Interest decreases, the contract must involve a "Buy to Close" and a "Sell to Close".

If Open Interest is unchanged, there's no way to know what the intent of the buyer and seller were (Open versus Close)

  • The question isn't very clear, but I think it is looking for a way to distinguish between a buyer placing a trade at the "Ask" price (being matched with a queued sell order) vs a seller placing a trade at the "Offer" price (being matched with a queued buy order). That is, which side of the transaction was queued and which was filled immediately. – Ben Voigt Jul 22 '18 at 15:05
  • The OP's question is quite unclear and rather than speculate what he is looking for, it's up to him to clarify. As for your answer as to what you think he was asking, it makes no difference which order was queued and which was filled immediately upon order placement. A buyer and a seller have opposing views. They simply agreed to transact at an acceptable price to each and which one was there first has no relevance. – Bob Baerker Jul 22 '18 at 16:59
  • @BobBaerker, the question is clear. I am looking for an ability to discern whether a transaction was buyer or seller initiated, ie. What system I would need in order to track that – Sauron Jul 23 '18 at 17:50
  • What I am looking for is a second by second level 2 data to peel through for options markets – Sauron Jul 23 '18 at 17:57
0

If you get the tic data, you can see what the highest bid and lowest ask were prior to the trade execution. If the trade was executed close to the bid (ask) price, you might infer the seller (buyer) demanded liquidity and the other side provided it.

The side of the trade that demanded liquidity does not need to be the same side that opened/closed. For example, an aggressive seller could be someone who wants to quickly exit a long position or someone who seeks to quickly open a new short position.

Bloomberg terminals can supply the bid and ask data.

0

"Sell to Open" sells an option to a market-maker. The market-maker buys at the bid and sells at the ask and that's why the market-maker takes the position. The market-maker is then holding a buy-side position that they can sell into a "Buy to Open" order or into a "Buy to Close" order.

Open interest is a tally of opening orders versus closing orders.

  • Open interest is a tally of contracts created or terminated not a tally of opening orders versus closing orders. – Bob Baerker May 15 at 3:38
  • The posted quote may not be a market maker's but another customer or brokerage firm. Some market data feeds on certain indicate whether or not there is customer interest at the best bid or offer. – xirt Jun 9 at 21:34
0

Buyer and Seller

An exchange traded option transaction has both a buyer and a seller. If there were not the two, the transaction would not take place.

I am curious how to gain insight into whether an option transaction was buyer or seller initiated, ie. "Buy to Open" or "Sell to Open".

Active vs Passive

In general (assuming US exchange traded options), one could look at the OPRA tick data for each transaction. If there was a posted offer to sell and that offer was hit and there was a corresponding decrease in size of the quote immediately after the transaction, it would appear that the option was bought taking liquidity from an existing quote (an active order traded against a passive quote).

If instead a bid was posted on the book, and was later hit, then that would indicate the buy was passive and the sell was active.

You may find instances where the trade price is better than the displayed price on BATS Options and NASDAQ options as those exchanges allow 'penny pricing' even though the displayed prices are rounded to 5 cent increments.

Open or Close

Whether or not it was a buy to open or buy to close would depend on the open interest at the end of the day, which may not have sufficient to work out. If the market maker who posted the quote was selling from his inventory, the open interest would be unchanged. If the market maker was writing the option, the open interest would increase.

Open Interest

Open interest information is available from the OCC (and through OPRA) at the end of each day. The daily volume is also broken down by Customer (retail), Firm (proprietary trading firms) and Market Makers. You may be able to deduce what happened from the sizes, but if the security was traded heavily, it may be difficult to figure out what happened (there may be multiple scenarios that fit the data).

  • Your "Open or Close" paragraph is not a clear explanation. There are 4 variables (BTO, BTC, STO, and STC). One pairing leads to an increase in Open Interest. One pairing leads to an decrease in OI. And the other 2 pairs result in no change in OI (options changing hands). So if the market maker was selling from his inventory, the OI could remain the same or decrease. If the market maker was writing the option, the open interest would could remain the same or increase. – Bob Baerker Jun 9 at 23:38

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.