Did you know that you can get paid to trade on NYSE Arca?

By: Amy Farnstrom

File Under: Options

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Hi options friends, it's Amy with another tidbit for you! With the recent decision by the SEC to expand the penny pilot to include 22 additional issues*, I thought we should talk more about the pilot and the benefits it offers to our clients. Now, we've discussed some of those benefits, as you might recall: "What this means for investors is tighter markets (.01 increments rather than .05 for premiums under $3.00 and .05 rather than .10 for premiums above $3.00). Along with our post/take pricing model, these smaller increments encourage market makers to quote tighter markets than they were able to in legacy issues."

Today I want to talk a bit more about the post/take pricing model. Did you know that you can get paid to trade on NYSE Arca? If you send us an order in one of the 35 penny pilot issues and add liquidity to the book you will receive a credit of $0.30 per contract if your order trades! Here's an example of how it works:

Let's say the market in a series is 1.21 - 1.24. If you send an order that doesn't immediately trade (i.e. paying 1.24) but instead send a 1.22, 1.21 or even a 1.19 bid and the series later trades at one of those prices, you will receive a credit! You don't have to set the market price to receive this credit; you just have to post liquidity to the book.

If you enter an order that immediately takes a bid or an offer, or routes to another exchange due to a better price there, you will pay $0.50 per contract. Over time if you both make and take markets, your effective rate is going to average out somewhere around $0.20 per contract.

Here's what is interesting: there are firms who manage their markets to the effect that they receive checks from us at the end of the month. True story!

One way you can help the odds of collecting credits for posting liquidity is through using our PNP order type. What does PNP mean?

Post No Preference-i.e. Post my order to the book, don't ever send it via routing or Linkage to another exchange. By using this order type, you are assured that when you enter an order, you will either trade immediately against the contra side of the market on NYSE Arca, post all or some part of your order to the NYSE Arca order book, or your order will be cancelled.

How it works:

Let's say the market is 2.19 - 2.23. You enter a 2.21 bid PNP order for 10 contracts. A 2.21 offer pops up from another exchange. If the NBBO is at 2.21 and NYSE Arca isn't on the offer when your order arrives, your order will cancel, and you can try again to post it to our book at another price.

If the market is 2.19 - 2.23 100 x 5 and NYSE Arca is alone on the offer, and you enter a 20 lot to pay 2.23 PNP, you will buy 5 from the NYSE Arca book (paying $0.50 per contract), then your remaining 15 contracts will post to the book and be eligible for the $0.30 credit if your order trades at some later time.

Getting paid to trade. Is that cool or what!?

* Issues in the Sept. 28, 2007 penny pilot expansion

SPY, AAPL, MO, DNDN, AMGN, YHOO, QCOM, GM, XLE, DIA, OIH, NYX, CSCO, XLF, T, C, AMZN, MOT, RIMM, FCX, COP, BMY