Thanks for the reply, Bob. I was more asking to see if there might be cash equities traders out there running a bare bones option MM set up to take advantage of the 60/40 tax rates. Maybe do some selective option quoting and the rest in low delta strikes or sit outside NBBO on names with small daily ranges in order to hit quoting requirements. No actant or market data fees necessary. It's probably 1) not legal and 2) not practical but people have done all sorts of "creative" things over the years. Wouldn't fit me, just found the possibility interesting...I'm sure if it's being done, you would know about it.
You have to be a SEC registered broker dealer to get 60/40 with equities and a member of an exchange to make it all work . All futures are 1256 contracts, so 60/40. You can do this on the futures side with lower costs and regulatory issues. You just need a quoting engine. Actant Quote and Option City would be worth a look. Your fixed costs are still likely to be $4K or more but you can do this with much less capital. I'd say $100K might work to start.
Doesn’t sound like much of a back door into 60/40 for an already successful cash equities shop. Interesting that FOPs MMing can be bootstrapped on the cheap. I’d imagine it’s priced that way for a reason. How’s life for those guys these days? Any two way flow?
I would add the penny pilot program. Keep in mind that MMs are making their dough mostly on the spread (bid-ask). Making $0.01 instead of $0.05 makes a huge difference.
That would imply there is two side flow which is not typical. Yes, wider markets from fractions when option were single lists were the best. Penny markets would be fine if there were not 15 option exchanges.
I could tell that MM has more tools and market knowledges than I because I trade thinly traded options. Often I was the only buyer/seller and typically I could not get fill at mid. If I could buy/sell at mid, 9 out of 10 times the underlying went against me immediately after. They had much better insights on the direction of the underlying than I could ever imagine. Fortunately I don't think they make directional bets so I don't have to try figure out why someone is willing to take the other side.
Now imagine you are the market maker in a thinly traded option. Once you put positions on you can never get out. Would you do any trades at the midpoint, which you consider fair value ?