Check fb price pinning to between large option open interest after doubling earnings

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VanishingMediator

This isn't hedging pressure, it has popped up a dollar and flashed back every minute along the way and then drops to below the level it was before earnings. AAPL is forced down to.

Obviously this activity is to collect derivative money, where most of the money is at these days. The new prices of stocks will all be where there are the most amount of worthless derivatives on either side
 
Are you watching any other market activity at all? Overlay a graph of FB and NQM4 along with the VWAP of FB and get back to me.

Also, if there were massive selling pressure in the market, how would that manifest itself in the markets? Huge size on the offer making it harder to push higher, and very little support on the bid?
 
trickyname said:
Are you watching any other market activity at all? Overlay a graph of FB and NQM4 along with the VWAP of FB and get back to me.

Also, if there were massive selling pressure in the market, how would that manifest itself in the markets? Huge size on the offer making it harder to push higher, and very little support on the bid?
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You are so clueless.

That never, ever happened during the course of the day as reported by Level 2, which reports human activity. HFT activity on the other hand always buys and sells in 1 order lots that are being placed in nanoseconds (for stocks with higher prices).

If everyone has calls on every stock in Nasdaq because of the recent pullback, and the market makers are colluding to capture derivative profits, then OF COURSE they are going to be correlated.

Besides, the situation with facebook (one of the stocks with the most open interest on nasdaq if not THE) is ridiculous in comparison to the others. They just doubled their earnings estimates, had huge ad growth, and have instagram and whatsapp that they haven't even tried to monitize yet.
 
Yep, so clueless.

MMs are not taking the other side of your trade unhedged. If they sold calls on every stock in the NDX, they'd be long all of the underlyings against it as a hedge. They would be massively short gamma and vol, meaning moves in either direction would be bad for them, and their short convexity will amplify the magnitude of any moves, making that scenario extremely unlikely.

US equity option markets are probably the most transparent and fairest markets in the world. Unlike rates or FX, everyone has access to every trade, and customer flow is prioritized over MM flow. It's very hard to screw the customer when the rules are tilted in his favor.
 
Also, germane to your real argument, but many people would disagree on the value added by Instagram and Whatsapp purchases and the sustainability of growth on a platform with a user base stagnating in size. Hence the price instability.
 
They do not hedge by buying the underlying right away. The stock price always drops drastically right after a large call purchase. They simply remove liquidity to control the stock price.

What you said is ridiculous. They would need more than 100 times the capital to hedge by purchasing the underlying. If anything they would take an equivalent option position, or hedge other ways using options.
 
VanishingMediator said:
They do not hedge by buying the underlying right away. The stock price always drops drastically right after a large call purchase. They simply remove liquidity to control the stock price.

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Just thinking outside the box - possibly the large call purchase was arranged so that the stock was purchased in order that the calls can be purchased with a hedge attached, and hence once the deal was done the stock drops?
Large call buyer is set, MM have hedge without having to worry about then trying to find liquidity themselves. Risk is effectively /efficiently transferred - folks move onto the next trade.
 
That's not outside the box, that's common. Large, pre-arranged orders made through a broker will come bundled with stock to remove the delta risk, as market-makers do hedge right away, with few exceptions, as they are vol traders, not delta traders.

Your comments on capital requirements demonstrate your complete lack of knowledge on how large firms finance their position. It takes nowhere near 100x the margin to hedge with the underlying; if it did, there would be an arbitrage. The margin requirements for a short ITM call would be higher than for 100 shares of the underlying because portfolio margin calculations include a vol component in them.

Also, most clearing firms allow for much higher leverage on equity positions than they do on options through the use of firm capital.
 
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