Options on Commodities Floor Traders

Quote from jfmiii:

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Anyone send his options orders to the Eurodollar pit ? any experience to share ? the screen is only tenth the floor ! Dec volume : 15 K screen , 205K floor .
 
Just saw the film "The Pit" -interesting documentary detailing life at the NYBOT and its demise as of 2011. Back in the heydays of open outcry, a guy can go into the membership office with $50000 in capital, lease a seat in the options pit for $350 monthly and trade 5 lots. With the closing of the floor and all options market making being done on screen. Can a small local contact a member firm, lease a seat , trade small with $50000 or is ICE now exclusively for the huge hedge funds acting as locals. Thanks.
 
I was told at the time that Chernobyl was the worst. True or was Continental just as bad? Hard to believe in the day a big bank like that could exist without a branch network!


Quote from dmo:

Technically, those on the floors you mention are not "market makers" as they have no obligation to make markets - just the ability to make markets if they choose. They're "locals." As a practical matter though, if they don't make two-sided markets the brokers won't routinely deal with them.

How do the option locals on those floors make money? There are as many answers as there are locals. Everyone has a different style or "game," as do the houses who put locals in the pit.

Generally though, it's a matter of buying wholesale and selling retail. The cheapness or expensiveness of an option is measured by its IV, not its dollar value, which is why locals consult theoretical value sheets (usually called "delta sheets"). You want to buy premium cheap and sell it expensive, trying to manage your position as neutral as possible.

Probably the toughest thing you face is when some big event happens (Chernobyl if you were in the grains then, the Continental Illinois Bank collapse in financials, mad cow disease if you were in live cattle) and premium gets bid up to the moon. You're the one selling it, so it's hard not to get way short gammas just when you least want to be short gammas. I was in T-bond options during the Continental collapse, and the biggest "market making" firm in the pit, CRT, damn near went bust.
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ICE closed ALL the pits late 2012 I think. MY question is can traders make markets on screen by opening an account with a member firm, leasing a seat and become a local on screen using ICE's order platform.
 
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