options market making, seed capital

[newwurldmn]

I will be competeting on the screen. The venue isn't too important. CME, CBOE, ICE, LIFFE, Eurex.

The venue is insanely important. You think the cme will let you turn on your computer and make markets? You have to buy market making rights and prove you have the technology and wherewithal to do it.

 

[1245]

I am looking to MM options on liquid underlying where most of the volume are traded on the screen. However, I do understand that I will be competing with faster players so I will be considering the potential pick-offs vs liquidity.

How can you tell which prints were from electronic orders that you had the ability to trade with and which were directed orders and crosses? I would guess up to 75% of equity option volume you have no chance of trading with. It is from option dark pools or shopped by a professional broker and crossed on the option exchange.

1245

 

[1245]

The venue is insanely important. You think the cme will let you turn on your computer and make markets? You have to buy market making rights and prove you have the technology and wherewithal to do it.

Not accurate. You can join the NFA, lease a seat on the CME to save on commissions and either use a stock MM platform like Option City/Actant/Orc etc, or built your own black box and connect directly to the CME iLink with permission of your FCM.

1245

 

[Maverick74]

I used to work for an options market making firm. I am looking to start a firm which will market make options. There seems to be many people willing to back futures strategies but are there any companies that are willing to seed option MMs?

Any advice would be appreciated.

Absolutely not. Like the others said, the overhead will destroy you. Large firms have economies of scale. I don't know anyone as an individual that is doing this anymore. And you quoted about 4 different exchanges which gives me the impression you think making markets in bananas is no different then apples. There is a WORLD of difference between rates, equities and commodities. People are highly specialized in each of these areas. And lastly, you NEED to acquire order flow from somewhere. You absolutely CANNOT live off of the paper that hits your market. You need to have large funds calling you for looks.

 

[newwurldmn]

Not accurate. You can join the NFA, lease a seat on the CME to save on commissions and either use a stock MM platform like Option City/Actant/Orc etc, or built your own black box and connect directly to the CME iLink with permission of your FCM.

1245

At least on the ISE, to be a market maker, you had to prove you could fulfill the obligations (technically and financially). My knowledge is a bit dated though. Each Bin cost about 1.8MM for CMM rights. To get all the bins cost about 22MM. That was one exchange.

But, do you really think there is a business plan here for this individual?

 

[1245]

At least on the ISE, to be a market maker, you had to prove you could fulfill the obligations (technically and financially). My knowledge is a bit dated though. Each Bin cost about 1.8MM for CMM rights. To get all the bins cost about 22MM. That was one exchange.

But, do you really think there is a business plan here for this individual?

Sorry, I thought you were commenting on my comment. The requirements to get a permit to trade on any of the equity option exchanges are very high when you combine that with what the clearing firms require. You can make markets in options on futures with much lower requirements. That was where I was redirecting him. Those markets are not as fragmented and require less capital and regulation.

 

[Maverick74]

Sorry, I thought you were commenting on my comment. The requirements to get a permit to trade on any of the equity option exchanges are very high when you combine that with what the clearing firms require. You can make markets in options on futures with much lower requirements. That was where I was redirecting him. Those markets are not as fragmented and require less capital and regulation.

Most of the edge on the futures side is on the physical options, not on exchange listed futures.

 

[1245]

Most of the edge on the futures side is on the physical options, not on exchange listed futures.

When you say "physical" options, can you explain.

 

[Maverick74]

When you say "physical" options, can you explain.

Sure, FTRs, day ahead power, hourly power, heating days, cooling days, basis swaps options, freight options, tolling agreements, etc. Shit I could list a thousand of them as the combinations are endless, but you get the idea.

 

[1245]

Sure, FTRs, day ahead power, hourly power, heating days, cooling days, basis swaps options, freight options, tolling agreements, etc. Shit I could list a thousand of them as the combinations are endless, but you get the idea.

Got it....thx