Consider the alternative way this "strategy" can go:
- Put in a standing order to sell a small amount slightly below market.
- Wait until you receive a "TRADE CONFIRMATION 100@$10" message.
- Buy a lot of same security very fast and put in a sell order at higher price.
- No one actually buys it.
- Loss
This is actually a very risky strategy and very few people do it.
What's actually happening most of the time is a far less risky one:
- Put in standing order SELL 100@$10, 100@$10.05, 100@$10.10
- When you receive TRADE CONFIRMAtiON @ $10, cancel other orders and reprice higher (maybe $10.20 and $10.30).
- Maybe put prices back if you don't get filled in an hour.
The goal here is to offer a good price $10.00 to Joe Sixpack (no delta toxicity), but to offer a worse price to Bill Ackman (high delta toxicity).
Consider the alternative way this "strategy" can go:
- Put in a standing order to sell a small amount slightly below market.
- Wait until you receive a "TRADE CONFIRMATION 100@$10" message.
- Buy a lot of same security very fast and put in a sell order at higher price.
- No one actually buys it.
- Loss
This is actually a very risky strategy and very few people do it.
What's actually happening most of the time is a far less risky one:
- Put in standing order SELL 100@$10, 100@$10.05, 100@$10.10
- When you receive TRADE CONFIRMAtiON @ $10, cancel other orders and reprice higher (maybe $10.20 and $10.30).
- Maybe put prices back if you don't get filled in an hour.
The goal here is to offer a good price $10.00 to Joe Sixpack (no delta toxicity), but to offer a worse price to Bill Ackman (high delta toxicity).