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

 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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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


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.

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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?

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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!

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


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