How would a 1000-contract option trade go down in real life? by John Desrosiers

John Desrosiers

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Does someone have insight into how a simulated trade pair like this would typically go down in real life? Of course a 1000-contract option purchase will move prices by an undefined amount (though the purchase is theoretically just $1000), BUT does anyone have some experience with the typical/likely order of magnitudes of price shift that could be expected?
Would you expect this 60x gain on paper to MOST LIKELY come out more like 30, 15, 5x?
In general, what's the max # of options that I can assume won't move the market too much?

2018-09-18 10:00:00 C 180921C00074000 Market $0.01 USD 1,000 Buy Filled

2018-09-20 12:32:00 C 180921C00074000 Market $0.60 USD -1,000 Sell Filled

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3 Comments

John Desrosiers

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Petter Hansson

9.6k ,

I recommend measuring on a brokerage account here, but it may obviously be problematic to do so ahead of time when it comes to trade sizes larger than your current capitalization allows. It's worth noting that IB at least tries to simulate market impact on their paper trading (and although I can't tell you in total how realistic it is, it's way better than QC paper). To me it seems that IB shows a lot of restraint in how they fill market orders, but the undefined behavior is still somewhat scary.

Absolutely do not trust backtests, that is the path to bitter disappointment. If you need accurate mid frequency backtests you need to develop and verify fill models on your own.

John Desrosiers

160 ,

Thanks for the referral to IB for market impact simulation. I'll try it out.

Do you have any hints or literature references for modelling the impact of large numbers of small-spread contracts?

Daniel Chen

STAFF ,

Hi John,

It’s awesome for you to consider modeling real market impact of a large number of contracts. Actually, it is very complicated since how market price goes depends on many different factors, including the brokerage, the trading symbol, its volume, timing and etc.

However, QuantConnect does provide some classic models for reality modeling. If you’d like to simulate how prices move after purchase, you would find Slippage Models very helpful.

Hope it helps!

John Desrosiers

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