Is There a Ratio of Naked to Covered Options?

[destriero]

So if I am understanding this correctly, the MM is essentially hedging all calls/puts, irrelevant of whether the option was opened as covered or naked? Sorry if I am misunderstanding, still trying to grasp it all.

Yeah. The MMer sees it as a single; a short call. He lays it off (covers it) (or) buys half shares (straddle conversion) or some other hedge to flatten his delta.

Regardless of whether it's a synthetic short put or he only sees the short call; the only difference is buying or selling the shares.

 

[KMAPTY]

Yeah. The MMer sees it as a single; a short call. He lays it off (covers it) (or) buys half shares (straddle conversion) or some other hedge to flatten his delta.

Regardless of whether it's a synthetic short put or he only sees the short call; the only difference is buying or selling the shares.

Thank you for the explanation!

 

[ITM_Latino]

If you are into that sort of stuff,I think this is as good as it gets .

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3505045

Center of Volume Mass: Does Options Trading Predict Stock Returns?


Abstract
We examine whether the distribution of trades along the set of strike prices of option contracts on the same stock contains information about underlying price discovery. We show that option traders' demand for delta exposure drives the volume-weighted average strike-spot price ratio (VWKS). In turn, we find that VWKS predicts underlying returns and anticipates the flow of fundamental information about the stock. The return predictability is greater but not limited to stocks with higher information asymmetries and arbitrage costs, and becomes stronger ahead of value relevant news. Overall, options trading appears to play an important informational role for underlying markets.

To take it one step further, there's the somewhat interesting theory of Cem, that the options are the real underlying.