Despite price sensitivity for market data, cost is not the sole determinant of market data needs. Matching options trading data to latency, market depth, and complex order requirements is critical to successfully execute a strategy.
Although sophisticated strategies may warrant a piecemeal approach to direct feeds, the Options Price Reporting Authority’s (OPRA) feed enables a simple and affordable method to access liquidity to kick-start any firm into the options space. Understanding the differences in options feeds and where your firm or trading brokerage stands will ensure the appropriate selection of market data feeds.
Options Market Data and the National Market System
In equities, consolidated feeds are distributed by two securities information processors (SIPs): CTA and UTP. Similarly, options data is consolidated and disseminated by the Options Price Reporting Authority (OPRA). All three of these feeds were created in a response to the SEC’s Regulation National Market System (Reg NMS), which aims to improve market fairness by requiring best execution and reliable price reporting across market venues. To comply with Reg NMS, all participant exchanges report their best bid and offer along with time of sale trade data to the appropriate SIP.
OPRA’s Consolidated Feed
OPRA’s Basic Service consolidates the trades and BBOs submitted by each participant exchange into a single feed. From the participants’ BBOs, a National Best Bid and Offer (NBBO) is established. The exchanges include options-dedicated markets like BOX and MIAX as well as the options subsidiaries of Cboe, Nasdaq, and NYSE.
Of the messages OPRA reports, quoting represents the vast majority of the traffic. Options chains are re-quoted with each change to the underlying asset, creating this high volume of quote data. To handle the volume of data coming from OPRA—sometimes compared to a firehose—a 40-gigabit network capacity is required. This creates a substantial networking investment into bandwidth unseen in other asset classes.
Table 1. OPRA Participants’ and Their Share of Market Volume
|Exchange Family||Options Exchange||Abbreviation||Share of Market Volume (Aug. 19)|
|CBOE||Cboe Bats BZX||BATS||9.4%|
Trading Options with Direct Data Feeds
Each OPRA participant offers their market data as a direct feed, similar to the CTA and UTP’s participants. These feeds are not aggregated, requiring more feeds to access the same liquidity as OPRA. However, opting for direct feeds circumvents the transmission to and aggregation of the OPRA feed, creating a lower-latency alternative.
Direct feeds also offer more options on feed depth and structure. In addition to the best bid and offer, direct feeds offer depth of book. On highly liquid options chains, this provides greater insight to price support and resistance by showing resting limit orders. Unique to options is the inclusion of complex order books. Provided by many options exchanges, complex order books provide a dedicated view of multi-leg orders quoted on their exchange.
For market makers or brokerages requiring a clear view of best bids and asks across direct feeds, the custom BBOs of market data normalization vendors are often used.
Selecting an Options Data Feed
Selecting options data feeds may seem inherent from reading their overviews, but four key factors determine whether a firm requires OPRA or direct feeds. Your requirements for cost, latency, market depth, and use of complex orders will delineate if one or both directions are needed for your trading requirements.
SIPs are widely recognized as the slower of the feed options due to the collection and consolidation processes. For trade strategies not requiring microsecond precision, they’re still viable. OPRA’s latency had a median of 42 µs in Q2 of 2019, while 90% of messages had a latency at or below 121 µs.
However, for market makers and high-frequency trading, direct feeds are more suitable. Even when consolidation is required, latency-sensitive traders can compile direct feeds into a custom BBO or price book. Through an FPGA-optimized hardware solution, minimal latency is added.
Touted as the most cost-efficient choice for options trading, OPRA’s feed involves one set of market fees to access all US options markets. Those new to the asset class may find this appealing for running a new strategy at a low cost. While market data from OPRA is notably cheaper than direct feed, firms still must consider the requisite network investment to handle the volume of data. Alternatively, subscription-based market data solutions like the DataPort Feed can throttle the market data to a firm’s requirements, decreasing bandwidth requirements and related costs to a fraction of that associated with a 40 Gb network.
Market Depth & Granularity
OPRA provides the BBO and last sale—both considered Level 1 or top-of-book—for each US options exchange. For greater depth of data, exchanges offer various price or order book feeds. Common variants of a price book aggregate quotes according to the five or ten most competitive price levels. The detail in these feeds better highlight support, resistance, and pools of liquidity. With greater depth of data, however, comes greater investment into data infrastructure.
Beyond the market depth, direct feeds offer more granularity of reference data. The status of an instrument and the types of market participants submitting quotes are both available on direct feeds but redacted on OPRA. For strategies tracking market makers’ orders or the open and close of an instrument’s trading, this reference data is a necessity.
Most exchanges offer a specialized complex order feed designated for multi-leg trades. The growing popularity of these feeds stem from traders increasingly customizing their hedges and simultaneously trying to avoid the slippage of submitting each leg individually. Complex trades are visible on OPRA; however, they are displayed as individual trade legs. The efficiencies in pricing, complexity, speed, and liquidity are more challenging to realize with OPRA, as you lose insight to others’ complex orders.
Selecting a feed set is highly customizable and dependent on specific trade strategies. For some, a combination of OPRA and select direct feeds suffices, while others take full advantage of OPRA’s cost-efficient access to liquidity. Armed with knowledge of the tradeoffs, firms are empowered to define trading needs.
Options Market Data Infrastructure
Market data must be met with appropriate market data infrastructure. Leveraging the transparency or speed of direct feeds is best managed through a hardware-driven solution. Whether its managed in your environment or hosted in a co-location, the infrastructure solutions are equally customizable to market data selection. If requirements are more straightforward, subscribing to an API may suit your needs. For more insight on how each of these may work with your market data trading strategy, request a consultation with an Exegy market data expert.