Lack of bid offer on ACI call 19 April expiration

[arturo100]

When there are only 33 open contracts, he is in fact the market. There might be only 2 buyers of said calls. You and another trader. A market maker's job is to keep the bid and ask as wide as possible. That is how he make this monies. Buys at the bid price then, sells it at the ask price.

Right, but you have to consider also people willing to sell to open. He is basically refusing to take any offer from them. Moreover, people in my shoes would rather exercise their calls instead of taking a bid below the intrinsic value.

 

[smallfil]

Right, but you have to consider also people willing to sell to open. He is basically refusing to take any offer from them. Moreover, people in my shoes would rather exercise their calls instead of taking a bid below the intrinsic value.

The market maker will do what suits him to make him the most monies. We do not have control over what he does. What we can do is align our orders with his. So, if he is low bidding your call option, do not sell it during that day. Wait till the next day. If he was able to buy call options dirt cheap, he will end up flipping it and now be on the ask side and having high ask prices. We can then, undercut him by putting an in between price between the bid and ask and in most cases, will get our order filled. We have also, gotten out at a better price than the previous day.

 

[rb7]

Right, but you have to consider also people willing to sell to open. He is basically refusing to take any offer from them. Moreover, people in my shoes would rather exercise their calls instead of taking a bid below the intrinsic value.

You know, when we're referring to Market maker, we are not referring to a single individual sending quotes manually, and deciding or not to quote on a particular strike. A MM can have hundred of thousands of series to quote on. So it's all done automatically based on pre-defined parameters.

 

[arturo100]

You know, when we're referring to Market maker, we are not referring to a single individual sending quotes manually, and deciding or not to quote on a particular strike. A MM can have hundred of thousands of series to quote on. So it's all done automatically based on pre-defined parameters.

This is exactly what I am worried about. Is the algorithm decides non to hedge under certain circumstances, the whole firm might find itself out of the market on a bunch of options like this. In this way, besides fees and costs of your employee, they will waste (part of) the investments made on the equipment for market making.

 

[arturo100]

The market maker will do what suits him to make him the most monies. We do not have control over what he does. What we can do is align our orders with his. So, if he is low bidding your call option, do not sell it during that day. Wait till the next day. If he was able to buy call options dirt cheap, he will end up flipping it and now be on the ask side and having high ask prices. We can then, undercut him by putting an in between price between the bid and ask and in most cases, will get our order filled. We have also, gotten out at a better price than the previous day.

I am not complaining. I was just trying to find out the MM way to work, in order to get a possible alignment.
As I said, if he persists with a low bid, I might end up to exercise the call. Or I may hold for a few days, as you suggested, since there are plenty or rumors on ACI. Anyway I hope the MM at least covered by now.

 

[rb7]

This is exactly what I am worried about. Is the algorithm decides non to hedge under certain circumstances, the whole firm might find itself out of the market on a bunch of options like this. In this way, besides fees and costs of your employee, they will waste (part of) the investments made on the equipment made for market making.

MM don't hedge each time they trade cause their positions are netted.
They make their money from buying at the bid and selling at the offer ('the spread').
And don't worry, they'll make money even (or especially!!) if they don't offer you a good price.
If you don't want to trade against MM (or minimize it), you shouldn't trade 'unliquid' options.

 

[newwurldmn]

Yes. We are talking about the same thing. Of course the MM can put any bid he wishes, but he is now offering an amount of money well below the option intrinsic value, which is around 1.30. He might save money by doing so, but as I said, he is also automatically putting himself out of the market. Probably he didn't hedge the position when he sold the call and now he has to put unmarketable prices.

he’s quoted low because he doesn’t want to get sight flat footed on a market turn. If you post an offer that’s reasonable, you will likely get lifted.

 

[earth_imperator]

I bought a few days ago 10 calls 19 ACI April @ 0.80. Since then, there is no bid offer. This is the only offer lacking on the whole option chain. Is this normal? I was under the impression that the market malker was obliged to expose a quote, but I might be wrong.
Regardless of this fact, what could be the reason ehind this? The market maker was unable to hedge his position? Possible, but here we are really talking about peanuts in comparison to the trades they can handle.

Just add your own Fake Bid...

 

[maxinger]

ACI call 20 April much better OI.

 

[arturo100]

ACI call 20 April much better OI.

Indeed, I bought also several call 20. The massive buying of this call on march 20 (40,000) was actually what sparked my interest on the underlying. When I spot these opportunities, I usually make also more conservative bets and for this reason I bought also the call 19.