I bought a few days ago 10 calls 19 ACI April @ 0.80. Since then, there is no bid offer. This is the only offer lacking on the whole option chain. Is this normal? I was under the impression that the market malker was obliged to expose a quote, but I might be wrong. Regardless of this fact, what could be the reason ehind this? The market maker was unable to hedge his position? Possible, but here we are really talking about peanuts in comparison to the trades they can handle.
The Market maker has to make the market wisely so as to earn $$$$ for himself and his company. If not, he will be fired by his boss. He has to earn $$$$ to bring home the bacon for his family. If not, he will be not only fired by his boss but also by his wife. He is not responsible for making sure you earn $$$$. He is not responsible for making sure you can bring home the bacon for your family.
I undestand that, but, by behaving this way, he has put himleft out of the market already for a few days. There are costs that his boss pays for the market making activity and I am not sure that he will be happy to see his employess to abstain from his role. Also, I thought that MM were making money on the bid-ask spread, not by putting bid offers below parity.
MM's boss is known to be a sadist. He'd make sure MM works like mad (and also smart). So he'd ask MM to take care of many many many stocks.
Put out an offer way off the market. MMs systems will see it and put in a competitive offer. It's all computers doing it
If the MM takes care of the other stocks in the same way, he will soon get fired! Then he will have to tell ths to his wife!
So, you bought 10 contracts of the April 21, 2013, $19 calls? Just want to make sure we are talking about the same thing. Showing only 33 open contracts. Bid is now at $0.10, Ask is $1.70. It is very thinly traded so, the market maker can set as low a price as he can. Ridiculous I know but, option buyers are at the mercy of the market makers most days. That is why you buy a strike price with atleast, 200 contracts in open interest and bid and ask difference is as small as possible. Say bid is $3.00 and Ask is $3.20 by example. Market maker knows you are trapped and he is going to take his pound of skin.
I'm currently seeing a market of 1.10/1.65 with a size of 15 on both sides. You will need to enter a small offer (1) to find the "real" bid. Now seeing a 1.30 bid, coming and going.
Yes. We are talking about the same thing. Of course the MM can put any bid he wishes, but he is now offering an amount of money well below the option intrinsic value, which is around 1.30. He might save money by doing so, but as I said, he is also automatically putting himself out of the market. Probably he didn't hedge the position when he sold the call and now he has to put unmarketable prices.
When there are only 33 open contracts, he is in fact the market. There might be only 2 buyers of said calls. You and another trader. A market maker's job is to keep the bid and ask as wide as possible. That is how he make this monies. Buys at the bid price then, sells it at the ask price.