Floor traders- pricing on the fly

K

karl-dcb

I've seen photographs of options traders on the floor holding pieces of what appear to be 8.5x11 paper folded in half the long way (presumably so they can fit in the trading jacket pocket). The papers seem to have columns of data printed on them. I'm not talking about the trading cards or paper orders brokers use.

I've heard them referred to as "sheets" - what exactly is on these sheets and how do the traders (market makers) use these to estimate options values?

Someone who's worked on the floor ought to know.

- thanks -

Karl
 
these are collums with theoretical prices of different options, different months, different strikes and often also different volatility. Don't think anybody uses them anymore.
 
Quote from cvds16:

these are collums with theoretical prices of different options, different months, different strikes and often also different volatility. Don't think anybody uses them anymore.
More...

There are two kinds of reports, one is the standard CBOE (forgot the name) greek report (I remember what the report is, but no idea what the name is anymore), I doubt anyone still is using it to trae. Another is a personalized option theoretical price report that a system like MicroHedge or a custom system that include volatility shifts, time shifts, etc. Yes probably most of the newer traders are using a handheld of some sorts that continuously update the theoretical prices, but there are quite a number of old traders tht are used to the sheets, and would trade off the report.
 
Thanks for the info - but I'm still wondering exactly what's on these sheets.

What is the most basic information a market maker would need in pricing an option on the floor?

I would guess the trader inputs a vol then receives a printout of strikes on Y axis with underlying price on X axis - number at box x,y would be a value for the option. Is this what they do (did)?

-thanks-

Karl
 
Quote from karl-dcb:

I would guess the trader inputs a vol then receives a printout of strikes on Y axis with underlying price on X axis - number at box x,y would be a value for the option. Is this what they do (did)?
More...

Yes. The sheets I used (price on y axis and strikes on x b/c I liked it that way) had call and put values along with deltas in a column at each strike. A column between the strikes had the call and put verticals along with the straddle.
 
They also have the vega. So maybe in the morning you're running front month vol at 31%, 1 month back at 29.5% etc. That's how you see whether or not you're trading for 'edge' - buy a strike a few ticks under your sheets, sell another strike a few over, etc. If vol is bid, everything front month trading 31.75%, you run new sheets with the new vol.

So they tell you what vol you're trading, and they allow you to calculate values on the spread trades. A broker wants to do a 3 way, buying 1 put/selling 2 calls - what's the delta, what's the vega, where are futures, etc - that's what you're sheets allow you to calculate.
 
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