Market makers mostly sell options, and the public buys?

Discussion in 'Options' started by crgarcia, Oct 1, 2009.

  1. Then the market makers rebuy the options they originally sold (mostly at a loss to the trader and a profit for them, since most options traders lose)?

    Of course they hedge their options sell somewhat.
  2. Is this a statement, question.... what...
  3. It's a statement of fact, not a state secret.
  4. market makers BUY and sell options based on their true theoretical prices. they dont always buy back the options they sold due to illiquidity but rather hedge their positions by buying different strikes to spread their volatility risk.
  5. spindr0


    I would think that a market maker spends more time in the middle b/t an option buyer an option seller (via conversions and reversals, etc.) and the winning an losing is more applicable to the other two parties.
  6. You can tell from CBOE data when MM's are long or short. It varies.

    FWIW I was told by someone who worked on a swaptions desk that they usually want to be a little long vol overall - little theta losses are part of life but big losses get people fired. But they can be very short in a particular strike/maturity. I would think equity option MMs have similar incentives.
  7. dr_sean


    Market makers aren't much different from most traders. They have on different things at different times. If a MM is almost always short or long vega / net options / etc, it's his personal style and in no way indicative of the market making industry.

    A good MM will never have an opinion on whether he wants to be long/shrt gamma,vega, w/o looking at his levels.
  8. 90% end worthless, yet the un-informed stupid trader keep buying them so if you have a 90% chance of making money
    selling them

    WHY BUY? Traders must make up 90% of the stupid people
    I have sold them and ALWAYS MADE MONEY
    just to scared to do with any size but make very good profit when I do

  9. erol


    Wap, how long you been selling them for?

    Btw if your spreads have any long positions you're part of that "90%" (i'm not talking net long)
  10. dr_sean


    If 90% of all options end worthless, then the 10% that don't pay for the rest. There's no sustained edge in one side of the market.

    Keep selling'll keep making money, until one day that stops working. And you will literally lose everything you've made so far--maybe more.
    #10     Oct 3, 2009