Equity Options: Transparency and Simplicity Are Clearly Not the Same

With no dark pools, hidden trades, or internalization schemes, and with each execution posted on a licensed and regulated exchange, we love to talk about how transparent the equity options markets are. This has helped propel option volume to well over 15 million contracts a day in May 2018 as retail customers and firms increasingly enter the space. However, with 15 exchanges and multiple pricing models (some even on the same exchange), the transparency of order flow can be masked by the complexity of order routing and execution. If the options market is so great, why is it so hard for a client to understand his or her true cost of execution? Has the industry, in all its transparency, gotten so much more complicated that what you see on the screen is NOT actually what you get when the trade is executed? This TABB Group note looks at options execution with the goal of helping market participants understand the true cost of execution—and examine the market a bit more surgically—as they try to access liquidity.