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Thursday, December 27, 2012

Curious Case of a Stuck Price Quote

The number of gotchas you can come across while trading in the financial markets are innumerate. The latest I've come across on my merry journey: the almighty stuck price quote!

BAM! See it? I met this happy traveler back on Thursday, December 6th. There I was, minding my own business and watching the quotes meander as they oft do. Suddenly, I see the bid far surpass the ask! And what do you think my first thought was? Well, it definitely wasn't, "That can't be right... let's find out what's going on." No, my first thought was more, "Whoa! Quick, adjust my offer price in the off chance it might be real!"

In the trading world, there are times when you shoot first and ask questions later. Remember the AAPL flash crash in 2010? I do! My long puts got pretty fat with a quickness, and I sold them just as fast. Now with profits safely taken off the table, I had plenty of time to ask questions. This scenario, however, wasn't the same case. No one gobbled up my puts.

My net liquidating value looked AWESOME. But that was all fake. Now it was important to find out what the deal was so that I could know where the market was actually trading. A quick call to the broker and it was all clear, "Looks like the quote is stuck. I'll report it to the exchange." Did he just say, "stuck?" Better believe it. In fact, that bid price remained at $30.30 for a good long while.

Moral of this story, watch out for stuck quotes! It is bad news, especially if you wrote a program to handle your trading for you. A stuck quote means could mean your program has a false idea about the state of the world. Add this quirk to the list of errant conditions for which you are checking!