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So I was trading the option contracts on NLY (Annaly Capital Managment) today. The stock took a big dip today which piqued my interests in selling some OTM puts. Since the options market on this particular stock is not a very liquid you have very wide bid-ask spread making it tough if you want to get your order filled.

When I put in my limit to sell the, quote on the October 11 strike weekly's with 28 DTE, were .06x.10, with both the bid and offer 350 contracts deep. I put my limit on .09 to make it more competitive, put me at a 19 vol. The market traded for a while without fill and as time passed, I started seeing more limits dribbling down towards my .09 price, albeit the biggest blocks were still at .10, so a penny above me. To play it a little more conservatively, I decided to move my limit a penny up in case the market dropped some more. I want to note, that the limit orders to sell were firm at 10 cents all day as I watched the time and sales.

ALL IN BEHOLE at the EXACT same instant I lifted my offer... all the limit orders to sell at my .09 price, were all pulled out and moved to .1 as well . It couldn't have been some human trader. Was there some algo shadowing my order?

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    $\begingroup$ I think you might mean "Lo and behold" $\endgroup$ – experquisite Sep 13 '14 at 21:38
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There's nothing nefarious going on here, it's simply a market maker ensuring they get their fair share (Hah!). Pro-rata allocation at many options exchanges mean market makers simply have to match your price to get a piece of the action. This is a good demonstration as to why that is bad for market structure since the incentive for a market maker to improve price is reduced.

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When market is illiquid and market maker want bid price X in book where first order, for example your best bid is at X-Y, then market maker quoting not X, because it not makes any sense, it quotes X-Y+tick and have same fill probability but makes p = X - (X-Y+tick) = Y-tick more profit. You should trade by some order management layer what should play with him in book, when you are as equal fast then execution probability will by equal divided too.

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