Goldman Sachs Electronic Trading has launched two new algorithms for U.S. Listed Options. The new Iceberg and Delta Adjusted algorithms are available to users on Goldman's RediPlus platform as well as its FIX offering."We've seen electronic trading in options grow dramatically, mainly due to the market structure and how liquidity is provided," says JP Xenakis, head of electronic listed options sales at Goldman Sachs.
The Iceberg algorithm posts small orders into various markets while holding the balance to optimize price and size of various orders while keeping in sync with each tick in the market. Once posted orders are executed they are replaced until the entire order is filled or cancelled. In addition, if the market moves into the limit price, the algorithm aggressively takes liquidity by sweeping with IOC orders.
The Delta Adjusted algorithm enables clients to float at a limit with the underlying security according to the option delta. If the price moves outside the upper and lower bounds set on the underlier the order will be paused to keep the delta relevant. The algorithm will hit all seven options markets until the order is marketable and sweep liquidity.
Xenakis says clients have been asking for these types of algorithms as they trade options more and more electronically. "On the buy side there is the community that are volatility driven and they've been trading options all along, but we're seeing even more involvement particularly from some of the traditional long only clients to enhance returns," he adds. "People are beginning to understand that in addition to hedging they can lever into positions without impacting the stock as much by using options."
These latest two algorithms are in addition to Goldman's Sigma and Prowler options algorithms already available, and more are on the way, says Xenakis. He adds that Goldman currently sees about 1.2 million options contracts per day coming through RediPlus.
While overseas markets don't have the liquidity issues that traders see here in the U.S. with multiple listings, Xenakis says eventually algorithms could be rolled out there as well. "As we find success and perfect some of these algorithms that would work an order or would be adaptable across the ocean, we plan to roll them out as well."