options market making, seed capital

Discussion in 'Professional Trading' started by mmt, Jun 4, 2014.

  1. mmt


    I used to work for an options market making firm. I am looking to start a firm which will market make options. There seems to be many people willing to back futures strategies but are there any companies that are willing to seed option MMs?

    Any advice would be appreciated.
  2. You can either be an employee of Citadel or be crushed by Citadel. :eek:
  3. newwurldmn


    What kind of market making?
  4. 1245


    The simple answer is no. There are more than enough option MM firms out there competing for order flow. The cost of doing business including regulatory costs keep going up and volume is mostly crossed from brokers shopping large orders. The bread and butter customer order flow is not growing. Also, the few Prime Brokers that offer clearing to MM at the exchanges are increasing their capital requirements and instituting minimum revenues per month. They might even exit that business soon.

    Trade off floor with CPM or lean toward option trading in futures that is not so fragmented and you don't need to be a registered SEC BD.

  5. mmt


    I am looking to MM options on liquid underlying where most of the volume are traded on the screen. However, I do understand that I will be competing with faster players so I will be considering the potential pick-offs vs liquidity.
  6. newwurldmn


    What venues will you plan to be making markets on?
    How will you source flow (competing on the screens, upstairs, in the pits?)
  7. mmt


    I will be competeting on the screen. The venue isn't too important. CME, CBOE, ICE, LIFFE, Eurex.
  8. mmt


    Which prime broker are you talking about?

  9. Virtually impossible. Your complete capital is at risk since it's been used for your haircut, your fixed costs are way to high to quote to make it worthwhile.

    Maybe 20 years ago, this is 2014, it's over for MM, the market volumes and the business of market making proves it.

    A lot of market makers are quoting just to get the almost zero trading fees as a member, and then trade delta neutral, they barely make money while their complete capital and more is at risk.
  10. 1245


    The three Prime Brokers that support MM as their guarantor that I know of are: GSEC, ML Pro and ABN AMRO. 10 years ago you could have set up shop with $250K, then $500K....about 2 years ago I heard they jumped to $5M and now I'm hearing they will go up soon to $10M and have monthly minimum commissions.

    I think they want out of that business. Too much risk, low commissions and a lot of support required.

    #10     Jun 4, 2014