Option MM, Ask Me Anything
- Thread starter Pekelo
- Start date
When I sell puts and they expire worthless, how do you make a profit from that?
where is your performance data?
1. he has sold them to someone else.
2. He has delta hedged them and earned on the gamma.
3. He has this risk spread against something else that earned him more.
They got value from hedging, just because they didn't make a profit from their individual trade with you doesn't mean it was for nothing, big funds buy options as insurance to reduce the variance of their portfolios which would otherwise manifest
In the simplest way I know...If you sell someone puts you collect a premium. If they expire worthless, you keep your premium. The guy who bought your puts paid a premium to you for them, and lost money because they expired worthless.
I would be cautious about comparing MM returns to other traders. A hedged OCC cleared MM can get, depending on the hedge, extraordinary leverage. Fairly similar to other markets. A fully hedged European box can get 20 to 1. There are a couple of former MMs on the forum. How much they can discuss would be very dependent on the current shop.
