That's disappointing. That was the one weakness on span margin. So all in all, Span is actually better then PM because you can use futures to hedge with Span, can't with PM. Looks like Span still reigns king
Bye-bye reg T
- Thread starter just21
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That's disappointing. That was the one weakness on span margin. So all in all, Span is actually better then PM because you can use futures to hedge with Span, can't with PM. Looks like Span still reigns king
I will think so.
IV comes from supply and demand. pm encourages selling. With so some many books and websites promoting selling premium, there will be an increase in premium sellers. So both IV and vol skew will be affected. However, because many traders don't really understand pm, there will be a lot margin calls that force the traders to liquidate their positions. You will see a lot of IV spikes in the future.
Even firms that have 1000s of beautifully hedged options positions and are the penultimate professionals, get margin calls. While I agree that some of that is a function of [mis]understanding, I think it is more a function of how many positions you have on, and a sudden move that is outside of your "simmulated x standard deviation move" when doing risk reports. If a firm hedges for all possible underlying moves, it would never make money.
I agree that PM will make jump style theoretical option pricing more prevalent because the market always finds ways to hurt as many positions as possible. The question is whether it will lead to 87/89 style crashes.
nitro
Natural buyers won't become sellers simply because it requires less capital to do so.
The equity option markets are dominated by institutions. PM was enacted to reduce hedging requirements. Of course, the flip-side is a reduction in unhedged positions as well. Sure, it will raise vol on price shocks.
In retrospect, I realize that I had a big assumption in the two seemingly contradictory statements, that once made explicit resolves what I was thinking in each post.
I inherently assume[d] that "retail" means taking liquidity. That is a poor assumption on my part, and it also clarifies why I could see no contradiction, whereas now I see why you did.
I am also mixing the meaning of the word retail. Just because someone opens a retail account at IB, doesn't mean they implicitly implement retail style trading. Although, it is nearly impossible to do MM style in a retail account, at least in options.
nitro
Nice outside the box thinking.