Home
/
IEX Options
The Options Risk Parameter is designed to reduce the impact of latency arbitrage by protecting market makers from execution of quotes at stale prices.
The Options Risk Parameter (ORP) is a quote type enabled by the Speed Bump that helps protect market makers from stale quotes.
Market Makers can optionally apply the ORP when they submit their quotes, set to either reprice or cancel their quote when the ORP is triggered.
The ORP assesses whether a quote is at a stale price based on an observed underlying price change.
When the ORP is enabled and triggered, the quote will be cancelled or repriced according to the Market Maker's election at time of quote submission.
A 350-microsecond, symmetric latency on incoming orders and messages before arriving at the exchange's matching engine.
The Speed Bump enables IEX Options to run the Options Risk Parameter (ORP) calculation in response to events observed over market data.
An AAPL Call contract has a bid-ask spread of $5.00 X $5.10. A Market Maker submits a quote to sell the Call at $5.10.
An underlying midpoint price for AAPL then increased by $0.06.
The ORP detects a price change in the underlying of $0.06 and calculates the Delta to be 0.5.
Given a Delta of 0.5 and a $0.06 move in AAPL, the ORP predicts the NBO of this Call option to go up by $0.03, which exceeds the ORP's Quote Instability Threshold.
Since this rounds to represent a move to a new price level, the ORP predicts the NBO will become $5.15, indicating quote instability.
Any ORP-enabled quote priced below $5.15 will either be cancelled or repriced to $5.15, depending on member selection.
An AAPL Call contract has a bid-ask spread of $5.00 X $5.10. A Market Maker submits a quote to sell the Call at $5.10.
An underlying midpoint price increases by $0.01.
The ORP detects a price change in the underlying of $0.01 and calculates the Delta to be 0.5.
Given a Delta of 0.5 and a $0.01 move in AAPL, the ORP predicts the NBO of this Call option to go up by $0.005, which does not exceed the Quote Instability Threshold and rounds to represent a move of less than one price level.
Therefore, the ORP determines this is an insufficient indication of quote instability and does not fire.
ORP-enabled quotes remain unchanged.