That is where the alpha is. There is no alpha putting on directional spreads in options and more importantly there is no feasible way for firms to monetize that. Back in the day when I ran our Chicago office that allowed retail guys to come in and do just that, we never made a dime on that business. In fact we lost money on it. We had to raise commissions on these punters and force them to bring in 100k or more just to cover cost. In the end, our revenue all came from remote market making. Even that business went under for us because the monthly overhead got too high for the marginal trader to cover. Remember, in order for a business relationship to blossom, it has to be economical for both parties. There just is no way for a firm to monetize a model that caters to retail traders.
That, and if you were to be a JBO full of leveraged retail option traders you'd probably never get any sleep at night because of all the gamma you were short. Short gamma is not a cost effective way to deploy capital from a margining perspective so even if you were able to monetize the fees from the retail traders in excess of the costs you'd collect fees from fewer individuals than you could with equities or futures.
In a JBO, they are no retail accounts. They are one firm with sub account to monitor P/L with no SIPC and higher option exchange execution costs from being a firm/BD. This is important, because many prop trader feel like customers of their BD, but they are not. You are not their customer you are their partner in only your earning but at risk for firm losses.
I think he was referring to their style. As you know Bob, we had a LOT of retail type traders at VTrader. God knows how many of them I had from ET. Disaster.
I can't imagine any vol-type strategies that can't be incorporated into an MM framework. Unless you are a long-short type of guy with strong sense of fundamentals, any option trader with true alpha should be able to transform his strategy into a market-making "lean on an edge".
That's not what these guys are doing. Or what they are looking for. I know, I use to recruit them, much to my detriment. They were punters looking for leverage. MM style trading is very vol dependent so all our MMs were vol traders and of course vol traders fit in that frame work. That is not what this guy was asking about.