Hedge Funds Invade the Options Markets

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Options are not a zero sum game like
stocks. One guy can buy a call and one
guy can sell that same call to him and
they can both be right and make
money.
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This is nonsense.

The entire Options Market is a classic Zero Sum Game...
Meaning the total profit and loss of ALL participants = ZERO.

Limiting the game to 2 participants and then making erroneous claims... is stoopid.
How can one possibly succeed...
If one doesn't understand the basics of the game one is playing?

http://en.wikipedia.org/wiki/Zero-sum_game
 
FWIW:

MM pay for order flow. As do the exchanges.

PMM can and do position trade as do CMM's.

This is all changing as the industry changes. More transparency. Tighter spreads. Less PFOF.

Typically however the money is in the spread and voluma and risk management as always. MM don't need your shiny nickle. They want you to trade and trade alot so's they can make the vig.
 
Quote from HoundDogOne:

---------------------------------------------------
Options are not a zero sum game like
stocks. One guy can buy a call and one
guy can sell that same call to him and
they can both be right and make
money.
----------------------------------------------------

This is nonsense.

The entire Options Market is a classic Zero Sum Game...
Meaning the total profit and loss of ALL participants = ZERO.

Limiting the game to 2 participants and then making erroneous claims... is stoopid.
How can one possibly succeed...
If one doesn't understand the basics of the game one is playing?

http://en.wikipedia.org/wiki/Zero-sum_game
More...

The notion that there is a winner and a lloser on every single options trade is just silly. Look up the functions of market makers along with the concept of hedging, etc. Then you will understand. However, I am thankful for people like you. You guys made a killing for me back in my market making days.
 
Quote from HoundDogOne:

---------------------------------------------------
Options are not a zero sum game like
stocks. One guy can buy a call and one
guy can sell that same call to him and
they can both be right and make
money.
----------------------------------------------------

This is nonsense.

The entire Options Market is a classic Zero Sum Game...
Meaning the total profit and loss of ALL participants = ZERO.

Limiting the game to 2 participants and then making erroneous claims... is stoopid.
How can one possibly succeed...
If one doesn't understand the basics of the game one is playing?

http://en.wikipedia.org/wiki/Zero-sum_game
More...

Complete rubbish. You're not seeing the forest from the trees. Various market participants have different goals and as such you can't simply look at a single trade to determine whether they are making money or not i.e. in commodities futures, swaps and options are used to hedge risk with buying/selling said commodities. So while a trader's brokerage account may show a negative P/L, his total portfolio (including physical and financial OTC trades) P/L could very well be profitable and vice versa.
 
Hedge Fund & Options Article

Guess the article that I posted at the top of this thread is even more relevant now. I wonder how Citadel did on Tuesday? Their market making activity probably saved them. Most hedge funds got spanked by the "crash", but they probably had their best day ever. After all, the options industry had it's biggest day ever on Tuesday. As long as you have the downside bullets, crash days can be very lucrative. If you don't, well then I guess you're pretty much out of luck. Citadel will never release their numbers, but it is fun to speculate.
 
Don't know how I missed this thread the first time, but I'm glad that I finally caught it.

Freaky article!!! The notion of hedge funds pulling the strings in the options markets is disturbing, to say the least. Don't want to have to rely on these guys to sell me puts when it's hitting the fan...
 
I know it sounds strange, but some part of me agrees with you. I know that market makers can't really enact their own agendas since they are really just slaves to order flow.

However, I still get an uneasy feeling in the pit of my stomach whenever I think of some shady hedge fund taking the other side of my options order.


Ask yourself this.....at the end of the day, are they going to sell you puts when the market is crashing?
 
of course the hedge funds will sell you puts in a collapsing market . you will be late. you will overpay. when calm resumes even temporarily the premium will collapse
 
Perhaps. Those periods ARE when the most money is made by market makers...

However, I've also seen periods where you just couldn't buy puts no matter how hard you tried. Somehow, with a hedge fund on the other side of the trade as opposed to a "pure" market maker, I feel that might become a more frequent occurrence.
 
Options are not a zero sum game.

In a zero sum game all money is returned to the players and it is not possible for more money to be lost by the losing players than is won by the winning players.

In some options trades it is possible for both buyer and seller to have a disadvantage do to commissions and a large spread.

In a zero sum game it is never possible for all the players to have "negative expected value."
 
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