SPY Option Quote Stuffing Or Explaining Today's 25 Point S&P Levitation

Tyler Durden's picture

The major compression in VIX into the close combined with a complete lack of JPY-based carry-driver for the equity market comeback today has many asking just what happened? Though the mechanism for quote-stuffing or momentum ignition in this case is unclear - one thing is absolutely crystal clear - today's total and utter explosion in the quote volume for SPY options provides more than a little concern for just what this market has become. As Nanex notes, over 1.1 billion quotes for SPY Options were posted today as 'quote spam' seems to be serving as some kind of parasitic momentum spark. The point here is that just as the market's flash-crash occurred on a day in which quote-stuffing in cash stocks hit a record; so today we got the inverse flash-smash higher in stocks from a surge in quotes on the far-more levered options market. Just look at these charts!!

 

Simply put - this spamming in the levered options market explains how the S&P 500 can leviate 25 points on low volume amid every other risk-asset's almost total nonchalence...

Via Nanex,

Obviously, no one at the SEC is paying attention. There should be an immediate review of recently proposed or added (10 share contracts) option contract types. In addition, a moratorium on new option's exchanges until this alarming explosion of unwanted quote spam is addressed. 

1. SPY Options Quotes - Daily Counts. Note, the scale is in millions.
Over 1.1 billion option quotes in a day for just one equity symbol.



3. SPY Options Trades - Daily Counts. Note the scale in the chart above (quotes) is in Millions.
Where are the trades? Maybe it's harder to execute trades in a sea of quotes.

 



3. SPY Options Quote/Trade Ratio.
The number of quotes for every trade is accelerating at an alarming rate.