Cboe Options introduces automation for index orders with multiple combos
Effective March 20, 2022, Cboe Options Exchange (C1) will extend existing automated “combo” order handling to Index Combo orders that include multiple combos plus at least one additional leg and have a ratio less than or equal to 8:1 when comparing the smallest non-combo leg versus the smallest combo.
A combo is a purchase (sale) of an index option call and sale (purchase) of an index option put with the same quantity, underlying index, expiration date, and strike price. An Index Combo order is an order to purchase or sell one or more index option series and the offsetting number of Index Combinations (“combos”) defined by the delta. The delta is the positive (negative) number of Index Combinations that must be sold (purchased) to establish a market neutral hedge with one or more series of the same index option.
Currently, Index Combo orders that include a single combo plus at least one other leg and have a ratio up to 8:1 are eligible for automated handling via COA, COB, and AIM. Specifically, to be eligible for automated handling the ratio of the quantity on the smallest non-combo leg versus the number of combos must not exceed 8:1, and the ratio of the largest versus smallest non-combo leg must not exceed 3:1. Automated handling for eligible Index Combo orders is available in all broad-based index options classes.
On the effective date, automated handling will be extended to Index Combo orders that include multiple combos plus at least one additional leg and have a ratio of 8:1 or less. When determining the ratio, the System will compare the smallest non-combo leg versus the quantity on the smallest combo.
Additionally, if the non-combo portion includes multiple legs, the ratio of the largest non-combo leg versus the smallest non-combo leg must also be 3:1 or less for the order to qualify for automated handling. Please note that the System does not systematically enforce the delta. TPHs must ensure that their orders otherwise meet the definition of an Index Combo.
In addition to making such orders eligible for automated handling, Index Combo orders meeting the above ratio requirements and executing in open outcry will qualify as complex orders and will be afforded benefits applicable to other conforming complex orders (e.g., able to trade in net complex order tick increments; legs can each trade in $.01 increments; if customers are at the top of the book on all legs then the leg execution price can touch the price of a resting customer as long as at least one other component of the complex order improves the BBO by at least one minimum tick increment; etc.).
Note that Complex AIM (C-AIM) functionality in SPX/SPXW during the RTH session is limited to orders of 10 contracts or less. With respect to this change, the C-AIM size cap will apply to the smallest leg. The AIM size cap for SPX/SPXW does not apply during the GTH session.
This functionality is currently available to test in the C1 certification environment.