The block you’re seeing on the retail side of level 2 are dealers closing out options, remember they are always in 100 lot increments, so 100, 200, 10k you get the point. Now if you had what we have you could actually see each trade and what it was but retails level 2 doesn’t give you what we have n level 3.
Ill try to explain what occurred as simple as I can.
RH allowed small accounts ( think under 250k ) to leverage enormous amounts of money through options. Their closing house requires so much liquidity on their books at all times, once retail started diving head first into options with no collateral it threw off their book requiring them to get an immediate loan ( 1.5 billon ) and halt trading, this occurred with many brokers not just RH. This also required them to force close many positions people held immediately trying to bring their book back into compliance.
So here is how it happens a small trader opens an account with a broker like RH they have very little $ in the account think 2000$ just for the sake of this discussion, that same trader buys 10 GME contracts, that purchase requires RH to hedge so they are forced to buy 1000 shares of GME at 300$ , the trader has just used his 2000$ and leveraged over 300k in equites the dealer was forced to buy as a hedge, you can see how RH books would easily get out of wack with mass retail buying of options with very little equity in their accounts. Now we will see the SEC likely require much more equity in a personal account before you can buy any options because this almost brought down the whole market.
My guess what is coming down the pipe.....
This was a major oversight by brokers and regulators allowing anyone to buy that many options without any liquidity in their accounts. I would guess retail will be required to have 30% of liquidity in their account at all times to cover each contract, so for GME at 300$, each contract will require the retail trader to have around 9k in their account at all times or they will be margined immediately.
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