Best Execution in Volatile Markets: QB’s Striker for E-mini S&P 500
In today’s global financial markets, macroeconomic forces are driving unprecedented uncertainty and volatility. Geopolitical tensions in the Middle East, inflation concerns, and the upcoming U.S. presidential election are creating a perfect storm of unpredictability. Amid these headwinds, E-mini S&P 500 options have reached record-breaking volumes in 2024. The average daily volume (ADV) for these options stands at 1.63 million contracts, representing a 23% year-over-year increase. (CME)
These figures underscore the growing reliance on E-mini S&P 500 options for managing market risk and capitalizing on opportunities during periods of volatility. Institutional traders face enormous challenges in maintaining optimal execution strategies. In response to this trend, QB added support for E-mini S&P options in Striker this year to provide our clients with optimized execution strategies amidst volatility.
As volatility spikes and liquidity fluctuates, traders need more than traditional methods—they need sophisticated, automated tools that ensure efficient execution and cost savings. This is where Quantitative Brokers’ Striker comes in. Designed to address the exact challenges posed by today’s volatile markets, Striker provides advanced features that offer superior price discovery, slippage reduction, and robust post-trade analysis.
The Challenge: Managing Market Risk with E-mini S&P 500 Index Options
Consider a portfolio manager (PM) with significant exposure to U.S. equities. As market volatility increases, the PM decides to hedge this risk using E-mini S&P 500 Index options. Their strategy involves executing an out-of-the-money (OTM) put spread with a 0.10 delta.
Traditionally, executing this strategy manually presents a number of challenges:
Price Discovery: In a fast-moving market, manually quoting via high touch brokers is inefficient. Fragmented liquidity and widening bid-ask spreads make this even more challenging.
Let’s say the market is 14.50/15.00 100 up, which is a bid-offer spread of $25.
Typically, by the time an order is communicated back to a high-touch broker, acknowledged, and entered, the market has moved.
Slippage: Market volatility often leads to slippage, where the actual execution price deviates from the expected price, resulting in higher costs and lower alpha.
Manual Booking: After execution, the PM must manually enter trade details into the system, which is time-consuming and prone to human error.
Striker: A Solution for Volatile Markets
QB’s Striker algo, created by market professionals in late 2021, was designed to make listed futures option trading as simple as trading futures via algorithms. By leveraging the rich liquidity of UDS (user-defined spread) markets on the CME and market makers’ algorithmic RFQ market responses, Striker is able to locate and trade listed options on futures at synthetic prices between bid/offer.
Price Discovery and Execution
Striker leverages synthetic price limits to work orders between the bid and ask prices. Instead of executing at the typical exchange tick market price, Striker finds hidden liquidity, ensuring better prices. By leveraging covered, delta neutral options structures, then subsequently unwinding that delta intelligently, Striker tightens markets and trades at prices inside of minimum tick increments. This is especially critical during periods of high volatility when bid-ask spreads widen.
Slippage Control
By working between tick increments in structures tied to futures, Striker significantly reduces slippage. In volatile environments, where the S&P 500 Index options are highly reactive to news and events, every dollar saved in slippage translates to improved trade alpha.
In our example above, on the 2EX4 5700-5600 put spread, instead of 14.50/15.00, Striker is showing 14.51/14.78, 70 up, providing a $.50 better bid and $11 better offer per lot, which is pure additive alpha.
Transaction Cost Analysis (TCA)
Post-trade, Striker’s Transaction Cost Analysis (TCA) provides detailed insights into where cost savings were realized. This allows traders to see exactly how Striker’s child order placement and execution mechanisms contributed to slippage reduction and better overall pricing.
Straight-Through Processing (STP)
Striker also eliminates the need for manual trade booking. By automatically integrating with the PM’s back-office systems, it ensures that all trades are recorded accurately and in real-time, reducing operational risk and allowing the PM to focus more on strategy.
Continuous Optimization And Measurable Impact
Striker slippage (01.2024-09.2024)
Since our last enhancement, we have observed a Volume-Weighted Average Passive Fill Ratio of 46% across supported products. This reflects a 13% increase in the passive fill rate over the last two quarters compared to Q1. In a world where every basis point counts, Striker delivers the precision, efficiency, and insights that today’s institutional traders demand.
Striker: An Invaluable Tool To Navigate Volatility
In today’s macro-driven markets, where volatility reigns and liquidity is fragmented, traders cannot rely on traditional execution methods. They need advanced tools like Striker that offer:
Superior price discovery intra-tick markets in seconds.
Reduced slippage, even in fast-moving markets.
Comprehensive post-trade analysis to ensure cost-saving transparency.
Automated booking for efficient operational workflow.
For traders in E-mini S&P 500 Index options, Striker is not just an execution tool—it is a critical component of a successful trading strategy in an increasingly volatile world. Striker is also available for UST, Gold, Natural Gas, SOFR, and Corn options, and we are actively working on expanding the product coverage further. With Striker, traders can navigate the challenges of today’s markets confidently, knowing that they have a tool that optimizes execution and reduces costs.
Quantitative Brokers – Trade Smarter, Trade Striker.