Is there a quant model that can help estimate how much slippage one would have to give up in order to get an "option spread" (vertical, butterflies, etc.) order executed?

What factors should one look at in building such a model? For instance, some factors that would impact whether a "butterfly spread" would get executed may include:

  1. NBBO bid / ask spread of individual legs across exchanges
  2. bid / ask spread of individual legs (all legs at given exchange (ISE, CBOE))
  3. greeks of options spread (delta, gamma, theta, vega)
  4. percent change in underlying instrument
  5. percent change in volatility
  6. volume / open interest at strikes

What other factors would one look at? How would one build a quant. model to estimate pre-trade slippage costs for option spreads?

  • $\begingroup$ you are omitting the most crucial piece, which is queue priority and how aggressive/defensive market makers are. $\endgroup$
    – Matt Wolf
    Sep 17, 2013 at 1:56


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