If you have solid alpha that’s not sensitive to latency, there is nothing unreasonable to try to use electronic market making as a venue for trading volatility or dispersion. It’s still a fair bit more hassle - I’ve never done it so not sure about the exact nature of it but i have looked into it.
$50k on my side for Options Market Making system
- Thread starter Aquarians
- Start date
I know this stuff man, I've published articles with my own option pricing models (those that don't work, of course
Well that sounds very far-fetched, since you're unwilling to back up your bluster...
Having a pricing model doesn't necessarily give you an edge, because you still need to price according to the market. You might attach different greeks to the options... but that's a hedging tool only.
If you're referring to your 'pricing models' as a way of saying vol is cheap or expensive.. you still need the knowledge of how to manage your risk.
But you will need a bit more than 50k or 100k.
I'm not saying he can't trade options and trade some volatility strategies... but market making is a different thing. I know plenty of guys that do market making for their own account. But they have 10-20 years of experience and at least 500k... and they can't do more than a few single stocks. Maybe one index...
Then there are guys that buy-in in a prop shop style market maker and trade for their own, using the facilities and infrastructure of the shop... they can get away with less capital, since they will use the shop's global risk and margin system through one clearing agent. But again, they will have way way more experience as a market maker than OP.
Hence my remark, better learn to swim properly before you dive in the ocean...
We did it. It's annoying because you can't choose what you trade and you spend more time managing your execution platform than sourcing new ideas.
And legit market making is about sourcing good flow. That requires scale but also relationships that will send you both good and bad flow (instead of just bad).
@Aquarians ... Found it. Why do you think Antonie Kotze is wrong with his paper on delta hedging with futures?
And why do you think options prices are different if you use futures or stocks to hedge...
Just curious to your thoughts, since I can't really find it in your paper... and I hate formulas.
And why do you think options prices are different if you use futures or stocks to hedge...
Just curious to your thoughts, since I can't really find it in your paper... and I hate formulas.
What strategy did Karen-the-Super Trader(The Plastic-Con-dor) use to make all that money? What books should the poster buy in your opinion? Your always so kind to the newbies, nice quality you have.
Aquarians - Whatever city you live in go find a trading desk a beg to become an intern. Live off your $50,000. Get to know them and after they develop some trust in you - leverage your knowledge up. There has never been a lack of demand for people who really understand derivatives. Stock desks - Convertible desks - Mortgage Backed desks - Option (obviously) desks, etc. If you think there are no trading desks in your area hit family offices. Family offices are often using derivative embedded products.
Wasn't Karen a fraud? She was just selling OTM strangles and rolling it on when it got close wasn't she? That works for a while... until premium dries up in low vol times (like now) and you get that outlier move...
Re books, looking at OP's paper... I assume he did read some good theoretical stuff involving modelling. But again, it's not all about modelling... especially in market making IMO.
I reckon OP has some ideas about dynamic hedging and working out a way to capture real vs implied vols... am I correct @Aquarians?
That would be a good strategy
, you just bumped up a few steps on my ladder 
But again... if you're going to do market making, that involves a bit more than just buying/selling vol through straddles.
The main purpose of market making is capturing bid/ask-spread through high volume, for which you need high flow information... especially in index. On top of that... in a low vol situation, where bid/ask-spreads are very tight and often volumes are not that great... you will need to think out vega/gamma/theta strategies and run positions. That's not really market making, but it's necessary to turn a profit... you need some experience for that... and capital.