you have a point somewhere, on the other hand if these are commodity options, the upside could be just as dangerous as the downside ...
Also I know the case of two finnish market makers on the EOE who managed to blow over 2 million (I believe it was guilders at that time, could be euro's too, my mind just has 2 millions registrerd) after the gulf war being gamma short in individual stock options as the market shot up ... so from a risk management point of view it's understandable ...
Well if he's selling wheat or bean calls (my guess) then he's losing edge on the wings. There wouldn't be any smile if it were a tidy hedge. Either reduce you're exposure, trade spot into the risk, or pay up for some wings in an amount that takes you off a call. Personally I think you're nuts if you're selling naked ags or energy options.
Like everything, it makes sense in moderation. If you mindful of the risk and have thought extensively about ways to monitor your risk, you can do it as a meaningful part of your portfolio. I would not, though
great post once again Atticus, as a former market maker I can still learn tons from you ... it's not my game anymore as I moved on ... I know whem I am outclassed ;-)
I don't deal with wheat or bean calls.. only spider options, Nothing unusual happened with my positions they were not bigger than usual that's why I was surprised . atticus -I might use wings or .. oldnemesis, I liked this link http://quant.stackexchange.com/ques...-be-short-gamma sle - I was considering voting with my feet but I spoke with the head of the Margin desk and he was very compliant and he explained to me that it was the Demand of the Bank they work with to reduce their exposure to risk . He was nice but I wasn't convinced by this explanation this is why I raised the question in order to see if anyone else received this Email and to try and get some ideas about the meaning of it .
really tabasco, I think you are playing a game that's going on a bit above your iq ... to put it mildly ... and that's no offense ... it's even above my iq (and I have a high one to put it mildly ). Do you even understand what Atticus is going on about, if not, and I am very much afraid you aren't, you even shouldn't be in this game the way you are playing it. If you can't spot the dumb guy at the poker table, chances are very big it's you ... SPY options are all about skew games if you are short gamma ... and I doubt you are able to judge them ... at least that's how I see it ... if you think I am wrong Atticus, feel free to comment ... I consider you the master at the option game here at ET ...