System Overview


Services provided by MJT Quote Engine include:


Connectivity to all the major Equity Options Exchanges.

Compliance with options market maker quoting requirements

Stock and Options Order routing to Clearing Firms and Exchanges.

Graphical Volatility Chart for extremly easy volatility management.

Trading Greeks analytics.

Extreme Risk analysis.

Real-time Haircut calculations.

Complex Order Entry and Management

Real-time options trade analysis for each trade.

Real time portfolio analysis by underlying and/or by portfolio.

Ability to send electronic orders based on user supplied criteria (both options and stock).

Stop Loss Order Handleing

Quicker updates to quote and order prices giving traders a competitive pricing edge.

Risk mitigation features for quoting and automated Order Management safety features to 

Ability to electronically send options quotes at a very low cost.

Real-time Mark to Mark Profit and Loss

Real-time Theoretical Profit and Loss.

Simple Solution to Market Making Regulatory Obligations.

Ability to Import and Export volatility information to and from other 3rd party applications.

MJT supports both ACTIV Financial and NYSE Technologies (Superfeed).

Very innovative trading displays

Maintenance Quotes (for minimizing risk and satisfying regulatory obligations)

Unique Trading Parameters Set up Page

Strategy trading (proprietary complex orders legging mechanism.


Product Specifics

User Setup – User Profile – Preferences




 The system includes a systems information monitor to check for lost connections. Many other safety measures such as heartbeat and severed-connection monitors remove the trader from the market until all dependencies are restored.




Market Screen Coloring - Better, Lock and Cross Coloring




Before submitting quotes, users can clearly and easily see if their quotes are in line with the NBBO by viewing the market screen.


If quotes are better on one side or both sides (bid and offer) of the NBBO in any series, the background of that series is highlighted in a cautionary yellow.

If theoretical values are locked/crossed with the NBBO, that value is highlighted. 

Green indicates the user is a buying opportunity below the current theoretical value. 

Red indicates there is a selling opportunity above current theoretical value.

Intuitive coloring is quick to learn, logical to traders and contrasts well to alert users to important events that occur in the trading session.

Users can control more issues (stocks) using automated alerts that are clearly displayed in the system.




Base Quote Prices Established from Underlying Prices




Typically, most systems use the mid-point of the primary market for the underlying to calculate base quote prices. However, MJT has refined this logic as follows:


Stock bid prices are used for call bids and put offers.

Stock ask prices are used for put bids and call asks.



The system prices calls and puts to the actual hedge value instead of the mid-point. The result is theoretical calculations are more accurate by capturing a true "edge to hedge" theoretical value.




Changing/Adjusting volatilities to changing market conditions




The user can change volatilities for the entire curve by clicking on either the 1 point or .1 point spinner.  As an example, if the 1 pt. spinner is clicked up twice, the entire volatility curve for that month will be adjusted up by 2 (two) points.  This allows a user to rapidly change volatilities by term to rapidly changing market conditions










Quoting Profiles





Different market conditions require different quoting styles to maximize profitability. The system offers a choice of four quoting profiles for quoting:


Opening

Standard

Aggressive

Passive

Changing quoting profiles is a one-click operation either by month or by series.  The user simply chooses a different profile in the “QuoteProfile” dropdown.








Copying Quoting Profiles to other profile




The copy functionality allows a user to quickly change edge/size parameters to adjust to any other profile that may have already been created. 







Each table lets users apply required discount to theoretical value for all buy prices and a premium over theoretical value for all offers. Once the amount of each quote’s required edge is established, traders can declare the amount of size they want their edge-based quote to reflect in the market. Users can configure the following inputs in order to create a quoting profile:


Buy Call Spread Edge

Buy Call Size

Sell Call Spread Edge

Sell Call Size

Buy Put Spread Edge

Buy Put Size

Sell Put Spread Edge

Sell Put Size

Utilizing tables is more intuitive than scripting, which is the current method used by the competition. Since most traders do not know how to write scripts, MJT’s method is more desirable and manageable – easy to expedite in rapidly changing market conditions.








Premium vs. Delta Based Edge Parameters




Edge parameters are configurable in two ways:


Premium based - users define premium ranges that correspond to specific edge parameters.

Delta based - users define delta ranges that correspond to specific edge parameters. Delta-based edge parameters allow traders to compensate for price changes as the options premium diminishes closer to expiration.




Recalculation Frequency of Base Quotes – (quote throttling)


Recalculation is based on either:


x move (in cents) in the underlying, or

y amount of time elapsed.




If the x or y parameter is met, recalculation occurs immediately.




For example, re-quote occurs if the stock moves $0.02 or if 15 seconds elapse.


Control over recalculation frequencies makes the MJT system faster than others in submitting quotes and evaluating theoretical pricing and position Greeks without over-quoting and wasting CPU resources.  This feature can also be used to mitigate the quote rate the user will send to the exchange.






Granular and Dynamic Time to expiration evaluation for calculating theoretical prices




Each time the system recalculates a base quote, we use the exact time remaining to expiration to avoid anomalies that result from calculating options with very short life spans.




OK to Improve NBBO




This feature lets users control (with one click) if their pricing can improve the NBBO.


If enabled, the system can submit quotes that are better than the NBBO, as long as edge parameters are met.

If disabled, the system can not better the NBBO, regardless of the prices created by the system. The prices submitted to the market are equal to the NBBO or worse.



Join NBBO if “x” size is available


This feature allows a user to configure the system so he/she will only join the NBBO when a certain size is available.






Auto-Hedge


The system can be set up so that system generated option trades are auto-hedged immediately by placing stock orders at the calculated buy/sell, price and exact delta. The user can choose to auto-hedge based on type of trading interest or choose to have all trades hedged automatically.  The user can also choose different styles of auto-hedge based on the quality of option execution.


 


Hedging risk is automatically and immediately eliminated by the system.




Users do not have to concentrate on equity hedges associated with option trades, providing more time to focus on trading strategies and position risk analysis. Also, the exact amount of deltas required to hedge the trade properly are sent. This occurs more quickly than other order management systems (OMS’s) in the industry.


Auto-hedge allows momentary moves in stock or options to be simultaneously captured where if you were to manually attempt this, you would miss most opportunities.




Exchange Order Routing


 


The MJT QE has a primary market for the underlying (NYSE or NASDAQ) and a secondary market, defined by users (currently ARCA).


This ensures that users always get best execution on the stock auto-hedge order.






Enable/Disable on Global, Underlying, and Series levels


User has multiple ways to control quoting.  User can activate on a global, underlying, or series level.

Users can activate quoting per series by simply checking a box to enable or disable the specific series.

Users can activate quoting for an entire underlying issue by simply double clicking on that underlying within the position greeks page.

Users can activate the global control by double clicking on Global Enable/Disable button on the position greeks page.

Yesterday’s Volatility

Users can see yesterday’s volatilities on the market screen so he/she can see the net difference in volatility between yesterday’s trading and current trading.

Allows users to do a P&L analysis and a theoretical change analysis.

Allows users to quote prior to the open not relying on implied volatilities to drive pricing.



Safety Features for Quoting




Auto-Fade


While users may want to actively quote, they may not want  numerous simultaneous or nearly simultaneous consecutive executions within the same series. Auto-fade functionality allows users to digest trades without the further risk of executing at the same price within the same series minus the time to digest the risk associated with the trade or to hedge the trade. Users can enable/disable auto-fade.




Auto-fade has two user-configurable parameters:


x amount fade choices: 1x (actual fade amount), 2x (double the fade amount) and an amount in dollars to fade, supplied by users.

y amount of time duration of the fade.





Minimum and Maximum Volatility


Within the system, there is a minimum and maximum threshold that acts as a “collar” for volatility inputs. This collar provides protection to users by limiting the lower/upper boundary of the run volatility value. If the run volatility is accidentally or inadvertently is run too low or too high, users could potentially sell/buy too much or too quickly, creating many undesired trades. In this case, users could have a significant loss.

User-created values establish the collar.

If users do not input any values, the system uses default values of 0 for minimum and 800 for maximum.



Minimum Sell Price


In some cases, the volatility value for out-of-the­-money strikes creates a price too low to justify the risk. The minimum sell price buffers this potential situation.

If users input a value for the minimum sell price, this value overrides any base quote offer less than this value.

This functionality operates on the month level. It is not configurable on the series level.



Maximum Buy Size


This value is a cap for the buy size of the base quote generated by the system.

The maximum buy size overrides any size generated by the system that is greater than this value.

Operates on the month level.

Applies to both calls and puts.



Maximum Sell Size


This value is a cap for the sell size of the base quote generated by the system.

The maximum sell size overrides any size generated by the system that is greater than this value.

Operates on the month level.

Applies to both calls and puts.



MJT Risk Limitation Mechanism




Allows users to set parameters that, when met, disable users from trading.


Operates on two variables: x trades, over y seconds.










External Exchange Risk Parameters - OX Risk Limitation


The system accommodates exchange-level, risk-limitation mechanisms. Users can manage this external functionality through the MJT system.


 







Underlying Quote Quality for Base Quote Pricing


Maximum inversion

Maximum move from previous price

Maximum width





Trading Analyses / Trade List


Real Time Individual Trade Analysis




The system performs trade analysis for each trade, based on data shown to users within the trade list. Trader’s confidence is boosted by knowledge of all pertinent real-time data in easily understood and flexible format. It allows a trader to visually confirm many trades as profitable in an instant.




Listed below are some of the unique data that the MJT application offers:


Theoretical price at time of trade (time received)

Theoretical edge of trade:

Amount of edge captured at receipt of trade. (Edge is the difference between theoretical value and trade price.)

P&L edge.

Trade theoretical P&L (dollar-amount display of net profit or loss on each trade)

Delta plus or minus (net long/short deltas obtained by each trade)

Suggested stock hedge (amount of shares and price of the auto-hedge order that is sent)

Recent base quotes – provides last 20 base quote prices generated including the underlying prices.  This is especially useful for audit trail purposes and trade disputes.

Totals of trade list are displayed at the bottom of the list.

Position Update - “Done Away” Order Entry





For non-electronic trades done at away exchanges, users need to manually update the position. Done Away Order Entry provides this ability.














OMS (Order Management System)


The MJT application has an order management system that displays all existing orders, including stocks and options, and their current status.


Displays typical information of an OMS: side, volume, series information, price, time of execution, etc.





Auto-Hedge Advanced Features

User can enable/disable auto-hedge for quotes and/or automated order sending (market taking).

Based on auto-hedge "edge" requirements that the user can define, the system will react differently and auto-hedge to the users needs.  In some cases, the trade received does not match the edge requirement set in the system - in other words, the trader is not happy with the option trade and needs to make a decision on how to hedge the stock. In the MJT system, the user can set a different treatment of auto-hedge if the option trade results in "x" negative edge.  "X' is definable by the user.



Styles of auto-hedge available for the trader include:

Normal Style (system will enter a limit order at the current market prices)

Do not auto-hedge.  In this case, the user chooses to manually hedge the trade.

AH at break even. The system will enter a limit order at a price to hedge the stock which will result in a break even on the option trade.

AH at required edge. The system will enter a limit order at a price which will regain the edge requirements entered by the user.

Market order ignore edge.  In this case, the user wants to immediately eliminate any legging risk possible and is satisfied with locking in whatever edge was received by option trade.

Double hedge - this particular hedging style was desired by a few MJT users and was built for a very specific scenario.  This feature is generally not used by most MJT traders.

1 cent better 

Middle Point



Real Time Position Greeks Analysis

All critical position updates are real time and put into a single view for the trader.

Access to information related to haircut requirements, P&L information (theoretical and mark to mark), risk information, and all greeks is provided in this screen.





Position Analysis - Risk


MJT has spent considerable effort in creating different risk views for the trader so he can manage his risk on a more real time and informative manner.  Within the "greeks detail by month" functionality, traders have a much more granular view of their risk so they can take the appropriate action(s) when needed.  Since many risk managers now have real time risk management systems provided by their clearing firm, it is extremely important that the trader be as informed as the manager.  Traders can see their risk broken down by month and by stock and can see the effect of price changes to their portfolio. 




BaseQuote Parameter Coloring


When things get busy during the trading day and the trader is making changes to his settings, there is a good chance he will become sidetracked and forget if changes have been saved or not.  This often results in electronic trading errors resulting in negative P&L and the trader needs to be prompted if he is about to hurt himself.  MJT uses coloring and modal pop-up prompts to notify the trader, so he can avoid the pain.





Complex Orders 








Opening Profile







Live Spreadwatchers






Informative User Log