The major compression in VIX into the close combined with a complete lack of JPY-based carry-driver for the equity market comeback today [4] has many asking just what happened? Though the mechanism for quote-stuffing or momentum ignition in this case is unclear [5] - 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 [6], 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 [7]. 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 [8] amid every other risk-asset's almost total nonchalence... [4]
Via Nanex, [6]
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.
