I recently saw a post from a trader who thought the market maker was pulling quotes when they did not see a bid side or an offer side. Here is my reply that should help you understand why there may not be a bid or offer.
I thought I would post this to help any traders that may also have this misunderstanding.
I do not see any issues on the pricing of these binaries.
or
If you see an issue on the pricing you may have a misunderstanding. Remember to always post screenshots if you think something is off and we can help explain it to you.
The quotes are not pulled. If they where pulled you would not see a bid or offer.
ie what happens in the last 30 seconds on 5 minute contracts or last 2 minutes on intraday or daily contracts.
If you do not see a bid on one side that means the bid/offer spread would put the quote at or below 0. No one is going to sell for 0 as 0 money can be made.
If you do not see a offer on one side that means the bid/offer spread would put the quote at or above 100. No one is going to buy at 100 as no money can be made.
When there is no bid or offer quote the size will be much lower as that are so far OTM in relation to the proximity of the strike to the current underlying market.
The price is a reflection of probability of the contract expiring ITM.
However, once there is no bid or offer the probability number is not reflected in price. You will simply see the bid or the offer at whatever the bid/offer spread is and that will reflect the price.
That probability is reflected by the implied volatiliy (aka the expected movement) priced into an option.
The bid offer spread itself is made in relation to the demand for the option and the ability of the liquidity provider (aka market marker) to lay the contract off on the other side. The bid offer spread is there to cover their risk in not being able to lay off a contract on the other side. This is how all options work.
This is not really a compliance issue but more of a issue of not being satisfied with the bid offer spreads. If you don’t like the bid offer then let them know and do not take the trade. But comparing the bid/offer spreads on their markets versus other options exchangs like CME etc… Their bid offer spreads are actually better.
You don’t compare a option to its underlying future for bid offer. Even doing this on ES to ES Options shows the massive difference.
Here is an example showing bid offers on Nadex Versus CME Emini Options. Nadex bid/offer wins hands down.
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I hope this clears up the issue for you. Let me know if you have any further questions.
Darrell