What is your problem? I just don't get it that this topic seems to be so hot that people ask me to stop talking about hedging. But just why?...
OddTrader, just stay on topic, you understand? The quoted postings are from other threads. They have nothing to do with the topic of this thread. I, and everybody else can do the same research about you... ;-) So, I made a typo of writing ITM instead of OTM. So what? It's clear from the context. Such a typo can happen everybody. Regarding buying Calls and Puts of the same strike at the same time: the question had some followups. The reason was that I read about a US regulation that one can't go long and short the underlying stock at the same time, because that gets classified by the US authorities as market manipulation... I didn't mean spreads, I meant countlessly buying of Calls and Puts @same_strike in a strategy, and closing some of them just some minutes later, and repeating it, ie. in a auto-trading system... I'm still not sure if such mass action throughout the day could be or could not be classified as market manipulation? Anybody know the answer? And regarding the system: so, what is your problem with the quoted passage of the text? Because even after reading many times over it, I still don't see any problem with it. Just enlighten me and us, pls.
You delete and then repost, edit, in an attempt to cover your feces. The buy-side shorts the bid. The sell-side shorts the offer. You buy the offer, and short the bid, or something inside those marketable-extremes. The point is that the market-maker is the liquidity provider -- he is there to get paid to offer you a ready-market in any option. This depth comes at a cost. Do not assume that the MMer has an opinion on PEP; or that he has an opinion on shorting puts for "income." Using your PEP put example. The MMer will likely go long the 20-shares to get neutral delta. He/she will look to spread/combo in other options if it materially-impacts his portfolio-greek position (g/v), ostensibly through customer flow, and will fill at a loss of edge if necessary. Larger operations will hedge upstairs against a global book. The MMer is not there to take an opinion on the merits of being short vol; gamma, vanna, etc. He's there to fill you for an edge -- his edge is your "convenience" cost. Intent doesn't matter. Whether it's some piker programmer selling a put or Millennium shorting 20K contracts. You will always be hedging into your risk -- IOW, likely at a loss. (long)Gamma scalping is not termed hedging as it's locking-in a gain to delta. They don't call it delta-scalping as it's the implied leverage to delta (via gamma) which takes your initial +20D position to +50D at the strike. The potential movement (from 20 to 50D) is where the MMer earns and you lose. Say you hedge a 99D DITM long call with short shares as a MMer. There is no gamma risk to the position, so it's simply a delta-hedge. You act as if you're a quant, yet you apply these absurd, almost poetic terms to describe how you can short a put and somehow abrogate the risks (as a profit center). You start with $150/contract. All hedging comes at a cost.
And you've already been told what to do. Apply some discounting-factor if you think there is some edge in shorting DOTM puts -- or take a look at the 30-day delta decay. Initial delta is +20? OK, so approx. a 1/5 chance of expiring under 90. Discount the initial delta req by 20% and short 16 shares/contract. It's likely a 3-4 week drift in delta.
Because you are wrong and people are correcting you but you continue to push with your ideas without listening. it is called stupidity.
And where exactly am I supposed to be wrong in this hedging scenario? As already said in the other thread, I don't need some ill advice... I'm currently writing a simulator to test the hedging scenario... PS: and be careful of whom you accuse of stupidity. IMO it is just you... ;-) Do you like it?
The usual destriero, trying to bring always new things into the discussion to make it as complicated as possible to make it impossible to follow for the audience... For the moment I'm simply skipping your postings, maybe sometimes later I'll point them... I simply don't get why some people still are talking of MMs when the topic is hedging. They seem to have not learnt anything else regarding hedging... It seems they can't imagine hedging in a different scenario, ie. hedging applied in normal circuimstances, beyond any MMs...
botpro ........ Don't listen to all the negative posters, there is a lot of professional jealousy on this site. Your "Continuous Hedging" idea is brilliant and it shows you like to think outside the box. Keep working on the concept and it will eventually bear fruit.