Marked maker

Discussion in 'Options' started by NHS, Jan 25, 2010.

  1. NHS


    The marked maker(s) can set the base for a price of an option by selecting an IV level. In illiquid markets, or way ITM / way OTM, where the supply and demand is low, in some cases only represented on one side by the marked maker, the marked maker has the power to control the price and the IV. I guess that’s life in the free and open marked, but is there a body or organization that oversees that marked makers? – I guess in some cases (also based on the open interest) they can act like they find best without taking historic volatility or other strike prices into account.
    Just wondering?, does the marked maker have a set of rules and guide lines for setting price and IV for illiquid options?
  2. cvds16


    Market makers decide on their own how to price options, they have a maximum spread though to take into account though. It's a way too complex job to put into exact rules but if you think they aren't doing their job like they should maybe you can become a market maker yourself :)
  3. NHS


    Yes why not - I want to be a maked maker, this should be easy to get a job like that :)

    Maximum spread?
  4. MTE


    It's a market maker not a marked maker.
  5. cvds16


    you could always make markets off floor ... I used to do that five years ago, it was very profitable untill spreads tightened and cancellation costs through IB ...
    I forgot the exact rules and they differ from exchange to exchange but mm are obliged to quote below certain maximum spreads in each series
  6. 1) Market makers do not arbitrarily "set" prices. They respond and adjust to customer order flow. They do not "control" prices.
    2) Market makers are overseen by the exchanges, their trading firms and other market makers.
    3) Highest bid and lowest offer "makes" the market. :cool:
  7. Fresh meat......whoops!......I mean fresh money is always desired at the exchanges. Submit your application today. You'll be trading in no time at all! :D