A lot of people aren't familiar with the process of how large option trades get done so I thought I'd lay it out for everyone here.
The first step is the order itself. A customer (could be anything from a hedge fund to a rich individual investor) contacts either his bank or his broker and gives them the order. If it's a bank they may decide that they like the order and are willing to trade with the customer themselves (a huge conflict of interest in my opinion but it happens all the time). If they don't want the trade or only want part of it, they then shop it out (if it was a broker getting the order they shop it out as well). The banks and brokers have a large list of contacts of professional traders. Usually its a big list of market-makers and banks and trading firms. They either call or instant message their list of contacts with the order the customer gave them and see if anyone wants to trade against it. They may have one person wanting the whole thing or a bunch of people wanting small pieces. When they get enough interest to cover the entire trade then it's time to execute it.
Every trade needs to print on an exchange, so the next step is getting it down to one of the floors. Each floor has different broker firms who execute orders. The upstairs broker holding this large trade will then call down to one of the floor brokers and tell them the order and ask them to cross it. This means that they have both sides of the trade and do not need help from the floor traders. The floor broker then walks into the option pit in which this stock trades and announces the trade. The specialist and floor traders then get to look at it and decide if they want to trade it. If they don't, then the broker crosses it and it gets on the tape. If they do, then the broker has to find out if the people that were shopped the trade are willing to cut back a little to let the floor traders get some. The floor traders cannot be bypassed if they want to participate on the trade. If the upstairs people are willing to cut back, then the floor guys get their piece and the trade gets on the tape. If they're not willing to cut back, then the upstairs broker will cancel the order on the floor and send it down to a different exchange in hopes of avoiding those floor guys. Eventually they either find an exchange where the floor guys don't care, or they cut back the least that they can.
One last thing to discuss is if the option trade was tied to stock. Most of the really big trades are tied to stock. In this case, the last thing to do is cross the stock. Once the trade is executed on the option floor, the broker must then call up a different broker to execute the stock portion (i.e. Cheevers or Libucki). They then print the stock at the agreed upon price, and each person on the trade will get their portion of the stock.
That is the entire life cycle of a large option trade. I hope it shed some light on the process.
P.S. Just in case anyone was wondering, the professional traders (market-makers and such) that get the phone calls and instant messages about the large trade are NOT allowed to act on it until the trade is announced on a floor. If someone were to get shown a big trade that was buying a large number of calls, they might be tempted to go out and buy other calls on the board knowing that the big customer is doing that. This is called frontrunning and is against the law.
