Finding consistent liquidity partners for options: thoughts?

Question

Curious if anyone has strategies for vetting and securing reliable liquidity partners for a nascent options desk. We're running into issues with inconsistent fills and wider spreads than anticipated on certain exotics, even with reasonable order sizes. It feels like the market makers we've approached either cherry-pick or are too slow on response times for rapid shifts. How are others ensuring competitive pricing and consistent execution quality without jumping through a dozen hoops every time you need a new counterparty? The KYB process alone can be a nightmare when just trying to get a feel for their service.

nguyen_tyler · Accepted Answer

Ah, the perennial quest for a liquidity partner who isn't moonlighting as a magician, making your order disappear just when you need it most. Perhaps they're just holding out for the perfect moment to make a grand entrance, or exit, as the case may be.

jessica.martinez · Answer

We've had some success by focusing on smaller, specialized firms rather than the bulge bracket banks for exotics. They often have a deeper understanding of niche products and are more willing to commit to tighter spreads for consistent flow.

chris_clark · Answer

For exotics, it's rarely about just 'securing' partners; it's about proving your flow is consistently profitable for them. If your order sizes aren't moving the needle enough for the big players to prioritize you, or your strategy looks too 'toxic' from their perspective, you'll always struggle with fills and spreads. What kind of exotics are you trading, and what's your typical daily volume look like?

danahaddad · Answer

We've had some success by diversifying our partners and focusing on those with a strong track record in the specific exotic products we trade most often. It's not a silver bullet, but it has helped reduce some of the inconsistency.

Finding consistent liquidity partners for options: thoughts?

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