Market Making & Options
Hi guys,
I am trying to figure out market making. I am trying to find the risks that market makers face, what they can do to protect them, and also how to use options to protect them and make profits. Can someone please shed some light on this? Many thanks
Read this to get some sense of the sorts of risks market makers face: http://www.bloombergview.com/articles/2016-02-25/-flash-boys-exchange-i…
It is hard to imagine how options can be used in this context.
Assuming you're talking about a linear mkt making desk, they are rarely going to use options in the course of market making... though they may use them to protect positions they are running, particularly over events, or to give them leverage they wouldn't otherwise be able to have.
Interestingly enough though, showing a two sided market is very similar to being short two options, and a lot of insight can be gleamed that way by going through the mental exercise of figuring out what that implies.
Equity Options Market Makers (Originally Posted: 05/13/2009)
Does anyone have a list of current market making firms focusing on the listed US Equity Options market? Thanks.
Hmm, interesting, no answer so far? Up!
It's the usual suspects. Timber Hill, Citadel, Goldman, etc...
All the major bulge brackets that I can think of. Then the hedge funds / prop shops... Jane Street, GETCO, SIG, CTC, DRW, etc, etc, etc I know I'm forgetting some. I saw a really good description of how each player kind of fits into the grand scheme of things but I can't find it. Basically to my understanding the banks do the most size, but some of the prop shops and hedge funds fill in a niche gap that is advantageous for them in terms of size... there's obviously a few exceptions like Citadel but that is sort of my understanding. Take it with a huge grain of salt though.
Best options market making desks? (Originally Posted: 12/29/2015)
I'm interning at an options market maker this summer, and was wondering which desks to look out for, or even what characteristics to look for in a desk. What's more interesting? Lucrative? Quantitative?
What kind of options?
Prop Market Making: Futures vs. Options (Originally Posted: 03/02/2009)
What are some of the pros and cons (or just general differences) of working in futures vs options for market making? Any input would be appreciated.
I also would love to know about this comparison. Anyone? Bueller?
Learning how to trade options offers a MUCH more valuable skill set than simply trading futures in my opinion. Options mm also tends to expose you to the futures market as a hedging instrument. Futures mm is usually based off a proprietary model that either analyzes flow/volume or makes a prediction on future price direction. To me, beyond prop models futures mm is blind luck. The spreads in futures markets are tight and volatility can be too high to capitalize on it depending on commodity. Bid/Asks are usually wider in options markets, leading to fatter profits if you can properly manage all the holding risks before you can offload the trade on the other side.
Thanks for the input. Clearly there are proponents of futures trading as well- can anyone else share some insight?
Great topic for those that are getting into trading and not sure the products they want to go after...
Market Making in futures is going to be a lot more speculative in nature than options because the spreads are tighter. You can hedge or arb between the different months and trade the curve also. In general tho its much more speculative in nature. I would love to Make Markets in equity index futures tho they tend to be extremely driven by computer programs now.
Best options product class to start out in for a quant trader role in market making? (Originally Posted: 04/02/2014)
I am joining an options MM firm as a quanty-trader. I was wondering what market (e.g. equity indexes, fixed income/interest rate, volatility indexes, ops on futs (if so, good underliers for those too), etc) is a good one to begin with that is intellectually interesting as well as not overly saturated or dead. My interests are diverse, honestly. Thanks!
Probably, equities, IMHO, as there's a lot more different stuff that trades in that space (i.e. you can do dispersion, etc etc)
Preparing for options market making (Originally Posted: 05/04/2014)
Hi guys first post here on wso, very exciting :).
I've somehow run into a trading intern position at an options market maker and I've got approximately a month to get myself up to date with fundamental options theory, does anyone suggest a good read for this end? Also would there be anything else I would/should practice or know before I get on the desk?
Cheers guys
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