optimal position closing

[JJump]

Hello guys,

I'm looking for a 'large' position closing strategy.
For example, we have open short pos. of 1000 contracts and we have to close it as soon as possible. But in order book of this instrument we see only 20-50 contracts on each price level. So, our position is tight for market tight now.
Therefore we should not close it by market course this way is not optimal and we can get huge loss doing it.
We neither don't want to transmit order of full pos. amount (1000) to best bid/ask, because arbitrageurs don't sleep too.
Roughly speaking it can be named as "going out from market with current liquidity analisys". Lots of factors can be taken into account here.

The question is: what is the optimal way to close position in limited time without market impact? Do some have any ideas about this algorithm?Strangely enough I didnt find anything about this topic on forums.

I'd look with pleasure for script on any programming language.

Thanks.

 

[JimTru]

JJump, you may break up the order into random position sizes to disguise yourself from the general trader, but the professionals will know where your orders are coming from and jump in front of you soon enough, as they see more and more coming from your one broker. Another strategy is to buy the same value in a related market and then close the two, almost offsetting positions, out later, over time. For example, if you are short silver, buy gold and plat, sell dollar to offset. Options on futures can be used to offset, too, but are more thin usually and can cause more slippage when using market orders. Your broker can help, too, if you trust them. You can "give" them the order, they take control of it and you can offer them better commissions if they get you a good price. Sometimes they will buy the order form you in house and then sell it later when the price moves their way. Sometimes they might be able to sell it to another strong hand who also does not want to make waves.