Yesterday, when I tried to close the butterfly I had two orders in - one to sell half of my butterflies @ $11.20 on the ISE exchange and because they happily ignored me 5 min later another order for half of the flies on CBOE for $11.25.
Surprise, Surprise the CBOE order was execute quickly - after a couple of minutes - while the ISE found no takers. I canceled/replace the ISE order and routed it to the CBOE were I was executed for a second time after a couple of minutes.
So a few observations;
a. It is good to shop around with your orders
b. Some traders think (mistakenly) that the spread orders are seen nationally - they are not - spreads are routed to the local exchange "Complex Order Book" - the complex order book is not shared over the exchanges
c. Some traders think (again mistakenly) that spread have NBBO pricing - they have not. NBBO stands for National Best Bid and Offer, if you come in with a single order - then the floor trader needs to trade with you within the limits of NBBO. So if Boston has a sharper bid for a contract than the CBOE, the CBOE can not trade on its own bid. It has to honor the better bid from Boston.
An example on NBBO
IBM Feb call 90
Boston bid 1.10 - 1.20
CBOE 1.00 - 1.20
PHLX 1.05 - 1.15
NBBO for this contract is 1.10 - 1.15. Routing an order to CBOE to buy the contract @ 1.20 would automatically execute on 1.15 @ the CBOE. Selling this contract for $1 @ the cboe lead to an execution of 1.10.
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