Here's One Way to Play a Potential Ban of Payment for Order Flow

Good riddance to PFOF if that comes to pass.

Author:
Mark Sebastian
Publish date:
Sep 1, 2021 3:29 PM EDT

If the SEC is serious about getting rid of payment for order flow... my hats off to them. PFOF is really really really bad. It leads to worse fills, so bad that the costs associated with "free trading" are completely outweighed by the bad fill prices.

If PFOF goes away, that is very good for some of the more established exchanges that have actual liquidity. I am thinking of the NYSE, the Nasdaq Market, and the CBOE.

CBOE Global Markets (CBOE) , in particular could be a huge beneficiary in the options. Options trading has blown up the last year, and while the end of "free" trading could dampen SOME volume, most of that increase is not going anywhere.

With PFOF gone, brokers would be compelled to send an option order to where it will get the best fill, which is usually going to be a place like CBOE that posts better markets. Here's hoping the customer wins and the lobbyists lose when it comes to PFOF.

I would be a buyer of the CBOE January 2023 $130 calls for around $14. If the SEC comes out and says they are not going to do anything, I would bail on this trade; otherwise I think these calls will do well.