Hey, it was just an idea...
A new options market is needed
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Ok, I see providing liquidity is the key factor for the MM system. Yes, it helps the customers to easily unload their stuff.
But the big spreads are a headache to me. OTOH, as you correctly said, the customer can easily tighten the spread by putting a limit order in the middle of the spread --> problem would be solved, at least theoretically, but I'm afraid big boys as the MMs are, they easily kick such small bids/offers, so that their own spread dominates the orderbook, which opens them many possibilities...
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You noticed that too...
Come on guys, please don't spread false information. I never said I'm asking for millions for the system; just a share of 15% to 20% (negotiable, and depending on acctsize) from the profits it makes, not in advance but afterwards.
I've seen here older threads where 20% was even the minimum, going even upto 50%, so it's all relative.
Options ARE volatility. The NBBO bid and offer are priced in volatility. The OTC markets don't quote premium; they quote vol-figures. Now imagine trading OTC in which the volatility was essentially fixed.
The OP doesn't understand the mechanics of how volatility trades. It's one thing to have a dealer market (as he proposes) in delta1 as there is no convexity (hence delta@1). Say the OCC were to make algo-markets in single-name options based upon the (30d) historical volatility.
There would be no method by which to price in future micro and macro-events; earnings, dividend-changes; non-farm payrolls, etc. You would have an arbitrarily (cheap) vol-market into earnings in which implied vol could be half of where it should be trading. Imagine how easy it would be to game the system. No entity, public or private, would take the risk of underwriting such a mkt. It would be a massive transfer of capital from the underwriter to the sell-side and HF space (buy-side).
You could counter that by running some sort of handicapping-model in which asymmetric flows would skew the model flat (market vol), but the OCC would go broke before the price normalized. Just one of many reasons why it's a terrible idea. It's the antonym of "free market."
The fact is that I often see complex spreads and combos quoted (on the COB) INSIDE the market in the underlying shares. That alone is proof that the options markets don't need fixing. The share markets DO need fixing (dark pool BS; HFT).
In summary; worst idea ever.
The OP doesn't understand the mechanics of how volatility trades. It's one thing to have a dealer market (as he proposes) in delta1 as there is no convexity (hence delta@1). Say the OCC were to make algo-markets in single-name options based upon the (30d) historical volatility.
There would be no method by which to price in future micro and macro-events; earnings, dividend-changes; non-farm payrolls, etc. You would have an arbitrarily (cheap) vol-market into earnings in which implied vol could be half of where it should be trading. Imagine how easy it would be to game the system. No entity, public or private, would take the risk of underwriting such a mkt. It would be a massive transfer of capital from the underwriter to the sell-side and HF space (buy-side).
You could counter that by running some sort of handicapping-model in which asymmetric flows would skew the model flat (market vol), but the OCC would go broke before the price normalized. Just one of many reasons why it's a terrible idea. It's the antonym of "free market."
The fact is that I often see complex spreads and combos quoted (on the COB) INSIDE the market in the underlying shares. That alone is proof that the options markets don't need fixing. The share markets DO need fixing (dark pool BS; HFT).
In summary; worst idea ever.
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...He's the guy who says you can make 1,000% annually with options -- He's a genius.
(i kid and joke, but it is possible)
The Birth of the Speculator (2009)