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Complex Option Spread Best Execution

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S3’s Execution Quality for Complex Spreads allows clients to determine and prove how well their complex spreads are being executed. By developing an execution quality system that understands complex orders, S3 is able to show the execution quality of the complete strategy, while still allowing clients to track the executions of each leg.

When a complex order is loaded into S3’s system, S3 creates a synthetic NBBO of the entire strategy, as well as a synthetic BBO for each exchange. By comparing the aggregated executions against these, as well as any applicable limit prices, clients are able to get an accurate view of how a spread executed against the market.

With the ability to address up to four legs, including up to one equity leg, S3 allows virtually any complex options strategy to be compared against how that strategy should theoretically execute in the market.

In the following example, the client is selling the BAC January 17, 2015 15.00 put and buying the BAC January 17, 2015 17.00 call at a limit price of 0.58 (debit). While the trade is better than the synthetic ask suggests, no price improvement is realized because the resulting trade executed at the limit price.

Segment Symbol Limit Price Execution Price NBBO Variance
Parent BAC 0.58 0.58 0.53 x 0.59 0.00
Leg 1 – Sell BAC_150117P15 1.04 1.04 x 1.07
Leg 2 – Buy BAC_150117C17 1.62 1.60 x 1.63

In the next example, the client is selling the EMR January 17, 2015 65.00 call and buying the EMR January 18, 2014 62.50 call at a limit price of 0.11 debit. The resulting trade executed at 0.01 debit, resulting in price improvement of $9.00 per contract, as compared to the NBBO, which is more stringent than the limit price. Note that the NBBO is -0.60 x 0.10, or a credit of 0.60 by a debit of 0.10.

Segment Symbol Limit Price Execution Price NBBO Variance
Parent EMR 0.11 0.01 -0.60 x 0.10 0.09
Leg 1 – Sell EMR_150117C65 7.52 7.50 x 7.70
Leg 2 – Buy EMR_140118C62.5 7.53 7.10 x 7.60

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