Help, Option MM is eye balling me !!

Also if some one knows a good youtube video that explains this stuff it would be appreciated.

also if you know of a you tube video that may explain the controversial MM or government or bank way of shacking people out of an investment (or trying manipulate markets it would be helpful.

Before you go off laughing, I would like to show you my recent research that is clearly biased...

1. a country asks the US to give back their gold

2. Cyprus bank accounts.

3. cyprus gold.

3.9 Bernanke talks about stopping the printing press. there was no inflation, (maybe it is coming ? )

4. Canada changes laws and the term "bail in" is coined referring to Cyprus style thinking ( not a big event but living here it was noted)
bit coin crashes.

5. banks lower out look.

6. Texas buys and protects.

Texas has changed legislation (i think recently) to allow for investments in physical gold by pension? or mutual funds? also they added that such investments would be protected from a government confiscation.

I am telling you that I am aware of my bias. I truly do not know where price will go. I can see new highs as easily as i can see gold get a 50% hair cut. or even more like bitcoins.

Banks and charts are telling me to short. but smart money seems to be buying or ready to buy the dip.

All i know is volatility has been violated and insurance may be a good idea


https://www.youtube.com/watch?v=BdTj6MJ-QVg
 
its been voted upon .

As for my thoughts I am indifferent and know anything can happen so I am ready to be completely wrong and will be surprised.

im neutral ,.

other think im crazy.

tally it up and the results are 0 for being a good thread.
 
http://en.wikipedia.org/wiki/Game_theory

http://en.wikipedia.org/wiki/Mechanism_design

http://en.wikipedia.org/wiki/Reflexivity_(social_theory)
"
Billionaire philosopher, George Soros, influenced by ideas put forward by his tutor, Karl Popper (1957), has been an active promoter of the relevance of reflexivity to economics first propounding it publicly in his 1987 book.[1] He regards his insights into market behaviour from applying the principle as a major factor in the success of his financial career.

Reflexivity is discordant with equilibrium theory, which stipulates that markets move towards equilibrium and that non-equilibrium fluctuations are merely random noise that will soon be corrected. In equilibrium theory, prices in the long run at equilibrium reflect the underlying fundamentals, which are unaffected by prices. Reflexivity asserts that prices do in fact influence the fundamentals and that these newly-influenced set of fundamentals then proceed to change expectations, thus influencing prices; the process continues in a self-reinforcing pattern. Because the pattern is self-reinforcing, markets tend towards disequilibrium. Sooner or later they reach a point where the sentiment is reversed and negative expectations become self-reinforcing in the downward direction, thereby explaining the familiar pattern of boom and bust cycles [2] An example Soros cites is the procyclical nature of lending, that is, the willingness of banks to ease lending standards for real estate loans when prices are rising, then raising standards when real estate prices are falling, reinforcing the boom and bust cycle.

"

http://en.wikipedia.org/wiki/Nash_equilibrium
 
equilibrium is a word

does he include bubbles in to his calculations ?

so we take in to account the bubble that is bursting ?

or do we assume it is the same as the last bubble and we can include it all.

but if we are at a high and calculate an equilibrium we are missing some data.

its like a moving average. yes we always hit it, but the MA follows price and gives no indication if teh next hit will be up or down.

as stated, equilibrium, just means that when we are high we will come down to some point.

buy low sell high, thanks for insight
 
Quote from traitor786:

I am wondering from people that have experience with options/futures If they have noticed a statistical situation in which there is such a break out and people run to hedge and all get screwed over when many of them take the same side of the insurance.

In stocks, we say go with trend which means little as it is subjective.

I am wondering if some one with experience can tell me that this "trade" is one that is not a 50 50 and Usually results in a lose in option and a loss in the trade one was hedging against.
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This does not really make sense.

Can you give an example of each side of the trade? ie: short ES and you expect a breakout to the upside so you buy an atm call to hedge?
 
Quote from traitor786:

I hate to bet so much on the replies i will get in a forum. But time is an issue, so please respond if your giving your honest opinion and have nothing to gain by posting except helping some one thank you

With my limited experience in options (none)

A premiss I will introduce is one of the Market Maker (or nature of stops or what ever you may want to call it) manipulate the market in a way to trap investors

One other premiss will be that the options market maker (trying to keep price stable to collect premiums ) Works in coordination with the commodity market maker to get maximum profit between the two. (one market maker is willing to loose a bit so the other can make more)

Typically, the idea is price makes a "fake" move to take out stops and scare people in to selling. Then it goes the opposite way with fuel at its back.

Lets assume this happens 50% of the time and the other 50% the break out is real.

Either way, many people (higher volume) may buy or sell an option at the point of break out. (an assumption)

Now there may be a Market maker (or what ever force) in options, seeing a break out and options being placed, a market maker would know when the the majority of options will expire and he may keep price in a tight range until the point of expiration so that people loose their premiums to the market maker (or what ever).

The day after the high amount of options expire (at a loss due to premium) fewer people renew their option as they see stability. and feel the cost of the insurance is not worth it.



So they see stability once again and dont get another option. with less options the market maker is more inclined to make a move that is big and make money through the non option move.

Option MM profits ---> less options as people see stability-->commodity MM starts to move price. people would of been better off renewing their options.


By now you see I know little of options unless I miraculously understood something at a quick glance. but I do like to watch out for people tricking me.

How can I see if the premise I have is true. (I use think or swim paper trading)

Also do you think one should worry about such a thing ?

Any advice at all would be greatly helpful.

I do not want to close my buy order on gold and what to learn to hedge against it instead of always closing, even if this is not the best way, It is good learning by doing. but I need to move fast now and get my option at the same time every one else is which scares me a bit.

I want to be hedged is commodities go down as they have broken support

thank you
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its premise not premiss, anyhoo the idea that its a conspiracy to take your dough is pretty common. There are many threads that argue about what moves markets, volume, news, my understanding is that current market makers won't trade unless there is an imbedded edge ie the spread. That is all they are interested in. At the end of the day the firm will have a position known as "the book" that they have to hedge or flatten. Imagine you are making markets and you are getting random fill across all strikes and months. After a certain period of time you will have long or negative delta
gamma theta etc that will have to be considered. With the advance of electronic trading it may be that the vast majority of mm's are flat at the end of the day. Almost every retail brokerage gets payment for order flow what does that tell you about their confidence level in the public's ability to pick winners?
 
Quote from traitor786:



One other premiss will be that the options market maker (trying to keep price stable to collect premiums ) Works in coordination with the commodity market maker to get maximum profit between the two. (one market maker is willing to loose a bit so the other can make more)

Typically, the idea is price makes a "fake" move to take out stops and scare people in to selling. Then it goes the opposite way with fuel at its back.

Lets assume this happens 50% of the time and the other 50% the break out is real.

Either way, many people (higher volume) may buy or sell an option at the point of break out. (an assumption)

Now there may be a Market maker (or what ever force) in options, seeing a break out and options being placed, a market maker would know when the the majority of options will expire and he may keep price in a tight range until the point of expiration so that people loose their premiums to the market maker (or what ever).
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You might be able to test out your theory (if I understand you).

If you start from options expiry date. If you chart the volume on the underlying and correlate it to open interest and watch the price.

There's probably a point in the month you could capture value on the underlying but not on the option and naturally would fizzle out by options expiry, when the options MM would make the money.

But Imo, you'd probably find "what not to do" rather than "What to do".
 
there was a theory called Max pain , that went along these lines.. its been backtested.. papers written on it.. this is not a valid assumption.. things change.. open interest is goes up for atm strikes as expiration approach... .. its dynamic and always changing.. sure the market maker has to make a spread .. he is always posting and offer and an ask... there is no way to enable someone to do that unless they can make a spread.. but im' telling you this whole paranoid theory is rediculus.. more the man is out to get me "shit" ... take responsibly and do some back testing based on open interest and see if i'm wrong.. you don't have a clue what are talking about.. nor do you have any quantitative measure to justify your conjecture.. its just paranoid "the man is holding me down" theory and its all just a way to avoid taking initiative and studying more.. go read the books i told you about please..
 
Quote from cdcaveman:

open interest is goes up for atm strikes as expiration approach
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+1

100% confirmation bias. They look at the high call and put OI and assume it's max pain, when in reality the ATM strike sees most of the volume.

We had a thread on this and we looked at current OI and it clearly showed, on the tickers in the sample, that the high OI strike was simply proximal (basically the monthly VWAP).

When I started trading there was a persistence at the high OI strike due to the unwinding of stock, combos and arbs. It's no longer relevant and "open interest goes up for atm strikes as exp approaches" was just as big a factor in the past. The difference today is that the arbs aren't a factor as the ratio of spot/option volume is much higher today.
 
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