Market Makers

[nitro]

Quote from xflat2186:

We used to call those guys box monkeys. I even recall the time when Timber Hill's guys had those screens with the colored blocks mounted on the sides of pits which told their MM's the markets to be on.

Yeah, Timber Hill gets a bad wrap for that, but as a firm they were way ahead of the curve. That is almost entirely the way it is now [except that blocks are replaced by handheld tablet computers], especially in equity index options. I worked for a firm that is a master of this, and we are thinking about it ourselves.

Do you really expect to walk into someone's office and ask a question like "hey are you making a killing these days making markets in options?" and expect to get any better an answer than you would here? LOL

It depends. I know I could. If you ask for handouts and specifics, people will tell you to go fuck yourself. If you are talking generalities, most people are more than willing to talk to you.

There are guys from 3 years ago and 5 years ago and 10 years ago and so on who would not make a dime today, just the same way there are plenty of guys who are MM's today who would not have made a dime in other time periods. The point you were trying to make was exactly what?

What I am saying is that there are people that made millions in '99 '00 [I won't even go into the old days or Raez] that literally don't know the most basic of options market making, let alone option trading. In those days, all you had to do is be with the crowd and money fell from the sky. It got much harder from say '03, and then it got waaaaaaay harder in the last year.

The reason I point this out is because many of these guys that can no longer make a dime in the business, set themselves up as mentors to the unsuspecting, with credentials from three years ago. I will state it again, because it is critical that naive people on this site understand: if you are being mentored by someone that is not making $ right now you are setting yourself up for failure unless you want to understand only the most basic things that you could otherwise get from a book like Natenberg.

As far as having weight with you, you were not the one asking the original question thus the way you weight things is pretty much moot in this thread.

What?

I would agree that in many ways its more difficult to make money as a stand alone MM these days in equity options, of course there are far fewer stand alone “locals” these days in multi listed equity options.

 

[rosy2]

nitro and xflat2186

what do you think about option market making in the grain pits or some other commodity?

do you think its like equities were several+ years ago?

 

[nitro]

Quote from rosy2:

nitro and xflat2186

what do you think about option market making in the grain pits or some other commodity?

do you think its like equities were several+ years ago?

It is a great place for option MMs. Nowhere near as hard as equity or equity index options, imo.

 

[xflat2186]

Grains, gold, crude, you're talking single listed options with wider spreads and you can still do extremely well. There is a catch! good luck breaking into one of those pits as a total noob. Could be months and months before you see any real order flow or longer. The real juice in something like the crude options pit could take you over a year to reall attain any status and the comptetition is cut throat.

 

[bwolinsky]

Quote from mapuata:

Now my questions... any ideas how they make their money so "easily"... do these guys get a lot of cream from their clients or are their valuation models that much better than those of other market participants?

[/B]

You got it. Bingo. They get favorable prices from their clients. Pricing software is now commonplace, and you'll find you get the market's answer every time. They get "order flow" and lots of it. They also quote prices away from fair value with their clients.

 

[xflat2186]

Quote from nitro:

Yeah, Timber Hill gets a bad wrap for that, but as a firm they were way ahead of the curve. That is almost entirely the way it is now [except that blocks are replaced by handheld tablet computers], especially in equity index options. I worked for a firm that is a master of this, and we are thinking about it ourselves.


It depends. I know I could. If you ask for handouts and specifics, people will tell you to go fuck yourself. If you are talking generalities, most people are more than willing to talk to you.


What I am saying is that there are people that made millions in '99 '00 [I won't even go into the old days or Raez] that literally don't know the most basic of options market making, let alone option trading. In those days, all you had to do is be with the crowd and money fell from the sky. It got much harder from say '03, and then it got waaaaaaay harder in the last year.

The reason I point this out is because many of these guys that can no longer make a dime in the business, set themselves up as mentors to the unsuspecting, with credentials from three years ago. I will state it again, because it is critical that naive people on this site understand: if you are being mentored by someone that is not making $ right now you are setting yourself up for failure unless you want to understand only the most basic things that you could otherwise get from a book like Natenberg.


What?

Most people are box monkey’s these days, they’re all part of a dispersion matrix which is managed by their higher ups. The MM’s simply either stream in their quotes electronically or the spit out the markets on their wireless box they hold and make no real decisions. Timber was at it early but now wolfie and susq and tons of other firms do it and do it well.
If you walked into our office and started asking how well we did or what strategies we’re running we’d really have a laugh without you knowing it. To be honest you’d never really get past the receptionist unless you were invited and we’d never really discuss anything specific with you, especially about profits and losses. Not that we’re doing anything super secret, there is just no upside for anyone to give out that info to someone who walks through the door.

Yea 99-01 was real easy money, there were guys who made an easy living by coat tailing the crowd and that’s all gone. You make it sound as if many of the traders were like that and they didn’t know much else. If you’re being mentored by someone whether or not they were a MM in the past is not all that relevant. Its your job to make sure the person you work with has a sound background in options theory and strategy. Do you really believe that what people do as a MM right now is something which a retail investor/trader is looking to duplicate and learn? How well do you really think market making right now translates into being a noob retail investor/trader?

 

[mapuata]

Thank you guys for all your answers.

For the time being I am not really interested in joining an options trading team as it would obviously take some time learning the ins and out of the trade and also because I am probably too old for it anyway.

On top I am earning an excellent living as a monkey-clicker in the futures market, although with an high level of stress involved (not complaining, au contraire I actually enjoy the kick).

But the way I see it these guys are nothing else, pretty much sharp monkey clickers trading based on cutting-edge models AND invaluable order flow.

Now the question I was trying to get answered is a rough estimate of how much comes from A how much from B.

Obviously only people inside the business know the exact numbers and it's a little bit like talking to bank traders... they all tell you that most of their money from prop positions and order flow is always cun%^g them (even most of my close friends claim this).

So an anonymous forum is in my opinion not the worst way to get an approximate picture as nobody is "losing their face". (obviously you have always to filter out the bull-shiters). Thx again.

To me it also appears that the US market is much more competitive than the European, maybe that has to do with the ratio of smart to dumb money, but once again possibly I am completely wrong and it is all due to great skills (of the traders or of the underlying models).

 

[mapuata]

Previous reply is a bit chaotic (following the market, two blogs and replying here seems to much for my brain)...

but the point I was trying to make with the last sentence is that perhaps the reality in Europe and the US are different. Our market makers also seem to make a lot more $ as the guys doing the same job in the US. But once again, maybe they are just the better traders...