This past week saw many instances of high frequency trading gone wrong. Like always we’ve highlighted a few that should be of interest and that we consider HFT Shenanigans.

High Frequency Trading HFT

The following charts show wild activity in the options markets. The dots on the first chart represent any second of time where trading in any single contract exceeded 50 trades per second, what Nanex calls “extreme trading.” The sizes of the circles relate to the number of trades in that second. The second chart is the same method, only this time applied to options quotes and using rates greater than 3,000 per second.

As we’ve seen shown before quote spam in options can be of ridiculous proportions. In comparing the two charts, you can see gigantic quote activity doesn’t necessarily lead to giant trade activity. With network capacity set to double in a few months, new dark pools planned to come online, and new options exchanges to open for trading shortly, suffice it to say trading (or at least quoting) activity will rise dramatically in the near future.

When we plotted the results, several things stood out. For extreme trades, there was a monster event on one day in September 2011. This event lasted just 1 second, and included options in many large cap stocks; Apple Inc. (NASDAQ:AAPL), SPY, QQQ. The other interesting find is how extreme option activity showed up in earnest in August 2011 – which was an extremely volatile trading period.

HFT Shenanigans Wild Options 600x378 Latest HFT Shenanigans: Wild Options Action And Was Jobs Data Out Early?

HFT Shenanigans Wild Options 3 600x378 Latest HFT Shenanigans: Wild Options Action And Was Jobs Data Out Early?

On Friday morning the stock of Kemper Corporation (NYSE:KMPR) went on a ridiculous price swing from $39 to over $350 per share. The whole sequence took about 30 seconds, which is quite drawn out relatively speaking. The first chart below shows the trades as circles and the gray shading represents the National Best Bid and Offer. As you can see the NBBO is extremely abnormal and the quote to trade ratio is very high at about 123:1. The second chart shows all quotes, color-coded by exchange. Note that the CBOE is seeing very aggressive quoting, yet not a single trade.

HFT Shenanigans KMPR 600x400 Latest HFT Shenanigans: Wild Options Action And Was Jobs Data Out Early?

HFT Shenanigans KMPR 2 600x400 Latest HFT Shenanigans: Wild Options Action And Was Jobs Data Out Early?

Friday morning brought the much anticipated and market-moving monthly employment data.Trading activity broke out in U.S. Treasury futures as well as gold futures a few seconds before the official release. Curiously, the trading was in the proper direction. The first chart below shows the 30 Year U.S. Treasury Bond Futures, followed by Gold Futures.

HFT Shenanigans 30 yr treasury futs 600x400 Latest HFT Shenanigans: Wild Options Action And Was Jobs Data Out Early?

HFT Shenanigans gold futs 600x400 Latest HFT Shenanigans: Wild Options Action And Was Jobs Data Out Early?

Every week we look to highlight some of the crazier examples of high frequency trading running amok in the markets. We typically do so with the help of data and charts from the good folks at Nanex. Eric and his team monitor and analyze market data like no one else we’ve seen and visualize it in a manner that allows most to understand a usually complex subject.