US options market data is anecdotally a cost-efficient asset class, and some might even consider it a reprieve from the high stakes of low latency trading in US equities. While efficiencies may be afforded to traders using Level 1 data from the Security Information Processors (SIPs), sophistication in strategy tends to warrant greater investment in feeds and infrastructure–investments comparable to equities counterparts.
This guide explains the uniqueness of the US options asset class and how market characteristics alter the market data buying decisions. Armed with this guide, firms will be able to better translate their strategies into technical requirements and vet market providers for their optimal trading infrastructure solution.
Market Structure and Liquidity in Options
No matter the asset class you trade, liquidity is essential to taking a market position.
High liquidity allows traders to efficiently enter and exit market positions at stable and
desirable prices. In turn, it upholds the intentions of trade strategies and reduces
slippage–thereby maximizing profits.
In the options market, seeking liquidity becomes even more important because of the
market’s unique structuring and usage. Lower trading volume, instrument
fragmentation, and hedging practices all create unconventional conditions that impact
liquidity and how a Portfolio Manager or Head of Trading defines strategy.
This guide outlines how liquidity in this asset class affects the type of US options market data your strategies will require, as well as the necessary infrastructure.