The TT Uncovered configuration window provides the user with configuration options in creating a synthetic quote.
- Option Leg – The outright option or strategy the user wants to synthetically quote.
- Future Leg – The hedging future leg for all covered spreads that will comprise the synthetic quote.
- Account – The account used on the instrument creation requests sent to the exchange.
- Delta – The center delta used to generate the set of covered spreads that will comprise the synthetic quote. The delta specified is the delta of the underlying option.
- Reference Price – The reference price used when creating the set of covered spreads. Reference Price is prepopulated with the last traded price of the future leg (or its settlement price if it has not traded) and can be adjusted by the user.
- Auto – When checked, the application automatically calculates the set of deltas and reference prices used to create covered spreads so that market makers have an evenly-spaced selection of instruments to quote, resulting in optimal synthetic pricing opportunities for the user. With Auto enabled, the application may slightly adjust the Delta the user provides. When Auto is disabled, the user sets additional configuration values using the fields that appear, described in the Auto Disabled section below.
- Pricing Strategy – Determines how the synthetic quote is priced:
- At Market – The synthetic quote is priced using the live order book of the future leg.
- Fixed Price – The synthetic quote is priced using the Fixed Price (8) set by the user. An example in which this option is used is if the user has already hedged their futures position at a specific price, and wants to price the synthetic quotes relative to that fixed price.
- Fixed Price – The fixed hedge price. Used only if Fixed Price is selected under Pricing Strategy (7).
- Only Trade Covered Spreads – Determines whether direct option liquidity is included in the synthetic quote feed and in the execution plan. If disabled, only quotes derived from covered spreads are included in the feed and execution plan.
- Enable RFQ – If checked, the application sends RFQs on instruments in the synthetic quote that are widely quoted and/or not being actively traded. RFQs are sent in a conservatively rate-limited manner.
Auto Disabled
When Auto (6) is unchecked, four additional fields appear:
A. Delta Range – The number of steps above and below the Delta, each as large as the Delta Step Size, used when creating the set of covered spreads.
B. Delta Step Size – The step size of the delta used when creating the set of covered spreads. Example: if Delta is 3, Delta Step Size is 2, and Delta Range is 2, the app will attempt to create covered spreads for all specified reference prices with the following deltas: -1, 1, 3, 5, 7.
C. Reference Price Range – The number of steps above and below the Reference Price, each as large as the Reference Price Step Size (in ticks of the underlying future), used when creating the set of covered spreads.
D. Reference Price Step Size – The step size of the reference price ticks used when creating the set of covered spreads. Example: if Reference Price is 0’12 (and the instrument ticks in increments of 0’01), Reference Price Step Size is 3, and Reference Price Range is 2, the app will attempt to create covered spreads for all specified deltas with the following reference prices: 0’06, 0’09, 0’12, 0’15, 0’18.
The graphic below shows two further examples of how the reference price range and step size parameters interact, and the total number of covered spreads generated in each case.
