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Easily. Look the attached this picture (the first nice-looking from google :): Strikes around 3900 have almost the same IV because the curve bends there.

Sorry, I did not mean that you are doing something wrong. Of course everyone has their own style. What I meant is by closing out your position early you are giving away profits. Unless both options worth a penny which I highly doubt. As you go into expiry you can have more longs for each short...

The ideology is to take more credit with a wider strikes but have greater skew risk. The wider the strikes the more you are exposed to the changes to the vol curve. I believe it was me talking about the slope, not hedgeman. The slope itself does not have effect on the ratio but the change in...

On the other side you won't see much profit (if any) if you close those spreads early. The alternative strategy would be to roll spreads a bit further from ATM, buy back some shorts and buy more longs as expiration approaches. Maintain the ratio as if the backspread was ATM. i.e. take gamma...

Yes, more longs for each short for calls than you would need for puts. I would roll the backspread to a lower gamma/vega strike as adjustment. Another option is to close some longs for a profit if you believe the underlying will come back where it was.

The ratio should be determined by the expected slope of the skew if underlying hits your short strike and time to expiry. The ratio is typically higher for calls because of the skew. For put backspread the slope will hardly change if underlying gaps down. But it's a different story for calls...

atticus, I think the OP just solved the strikes so that his expiration graph is in profit zone, that's not hard when using calendars and assuming constant vols. How did you come to your conclusion re bumps/boosts of the vol curve?

atticus, I believe cdcaveman is talking about a 1000bp move either in front or back month vol. How come it's not enough to generate pnl? PS 1bp = 0.01%

I would suggest to drop that put backspread. You probably thought that the credit you are taking will offset the loss of the strangle/straddle swap if underlying stays still. But it adds more risk than you are thinking there is as this backspread is very sensitive to vol/skew. Start with...

Close, but it wasn't that stupid :) I was quoting front month options on European index. The quoter was quite aggressive with the orders but it won't survive in this market anyway with such a horrible commission (1.5 per contract, that is more than tick size!).

I remember I once run my quoter on STOXX50 on Eurex just to test the new algo. My primary market was closed at that time. I was surprised when the quoter stopped working in the middle of the session. It was because cancellation fees ate my entire account! Shocker! It was a paper account so I did...

You mentioned very low gamma :) Ok, this is interesting then. How do you hedge you gamma then? Are you quoting e.g. butterfies and cross the spread to complete the position immediately once filled on any leg?

So you quote the wings on COB for a few minutes? Why do you call it market making?

While logmoneyness does affect this I believe the source of the difference are interest rates and dividends.

How about closing out your trade when it's out of the range and putting a new adjusted one? You will save on costs on trading the underlying and keep your margin low. Try the same with iron condor instead of a strangle to reduce gap risk.

Why would you ever need to read the market then? Actually, serious question - what the reading of the market is? How do you read it?

Yes I'm on HK farm and my ping RT is about 150ms. I though it's some limits and margin calculations on IB side that take so long. Or because IB route their orders to KRX through someone else. But if you guys have better latency then it's very interesting. Did you measure your latency with KOSPI?

I'm getting a whopping 5-6 second round-trip order latency with Interactive Brokers. Which broker can you recommend to trade KOSPI? I found Newedge and MF Global so far but have no idea of their performance. Can someone share their experience? Regards Q

Depends on the market. In some markets MMs don't have any control because the market is so deep and the skew becomes very kinky. MMs smooth the kinks by trading spreads when there's true arb opportunity but the actual vol curve looks very weird sometimes. E.g. this happens with KOSPI 200 quite...

The simplest thing to do is to fit a quadratic or cubic spline to the implied vols. You can use least squares optimizer to do this. All you need to do is to play with the spline parameters like the number of knots to get the desired effect. Then the resulting curve is your vol curve - back out...