Please help me, option market making risk return, thanks

[76132]

Hello,

I am desperate for a job and was just wondering when it comes to OMM, what does an employer look at when it comes to risk/return and capital. What's the typical risk/return profile for a market making desk? Basically, how much return is a firm expecting for a given amount of risk?

Also, how do I translate a net liq balance to the amount of margin or capital I would need? I would like to figure out how much capital I need for a certain trading size.

I just want to be able to pitch myself properly. This is the amount of capital I need, this is the amount of return I generate based on this capital, etc... Not sure if that's the right way to pitch myself but I will try this first.

Or do employers look at VAR as opposed to capital? What metrics do I need to have?

Thanks!

 

[Robert Morse]

Hello,

I am desperate for a new job and was just wondering when it comes to OMM, what does an employer look at when it comes to risk/return and capital. What's the typical risk/return profile for a market making desk? Basically, how much return is a firm expecting for a given amount of risk?

Also, how do I translate a net liq balance to the amount of margin or capital I would need? I would like to figure out how much capital I need for a certain trading size.

I just want to be able to pitch myself properly.

Thanks!

They hire other MM with experience or math/programmers out of top schools and teach them options.

 

[76132]

They hire other MM with experience or math/programmers out of top schools and teach them options.

I know that part. I'm trying to figure out what metrics I need to provide if I want to pitch myself to start my own desk. I can provide certain numbers such as current overhead, but what other metrics do I need?

Let's say a firm wants to enter into a certain product/space and needs someone to help them start it. I want to pitch myself as that guy.

 

[Robert Morse]

I know that part. I'm trying to figure out what metrics I need to provide if I want to pitch myself to start my own desk. I can provide certain numbers such as current overhead, but what other metrics do I need?

Your on the wrong path and would take too long to type a full response. Happy to chat on the phone one day.

 

[bone]

Hello,

I am desperate for a job and was just wondering when it comes to OMM, what does an employer look at when it comes to risk/return and capital. What's the typical risk/return profile for a market making desk? Basically, how much return is a firm expecting for a given amount of risk?

Also, how do I translate a net liq balance to the amount of margin or capital I would need? I would like to figure out how much capital I need for a certain trading size.

I just want to be able to pitch myself properly. This is the amount of capital I need, this is the amount of return I generate based on this capital, etc... Not sure if that's the right way to pitch myself but I will try this first.

Or do employers look at VAR as opposed to capital? What metrics do I need to have?

Thanks!

I would never want to dampen someone's enthusiasm. But I cannot think of a more saturated trading space than options market making. I have a very good friend who is a Principal at a long time Chicago OMM proprietary firm - and it is very tough. You run your model on Orc and carry a book. The problem is that there is tremendous competition to pick up a couple pennies. Used to be quarters, then dimes, then nickels...

Making markets in Over The Counter products can be good - but that is an adult swim in the deep end of the pool.

I would recommend that you interview for analyst positions. Hopefully you have a Hard Sciences / Math background ?

 

[76132]

I would never want to dampen someone's enthusiasm. But I cannot think of a more saturated trading space than options market making. I have a very good friend who is a Principal at a long time Chicago OMM proprietary firm - and it is very tough. You run your model on Orc and carry a book. The problem is that there is tremendous competition to pick up a couple pennies. Used to be quarters, then dimes, then nickels...

Making markets in Over The Counter products can be good - but that is an adult swim in the deep end of the pool.

I would recommend that you interview for analyst positions.

I can't think of anything else to do. I am in B-school but just couldn't find ibanking or product management, or anything else interesting. In my current product, I feel like there are opportunities still.

 

[destriero]

I can't think of anything else to do. I am in B-school but just couldn't find ibanking or product management, or anything else interesting. In my current product, I feel like there are opportunities still but I need to be able to manage the desk.

You're trying to pitch yourself as a head of a desk while you're in B-school. Prop-trading is essentially dead. You'll be lucky to get on a D1 desk.

 

[76132]

You're trying to pitch yourself as a head of a desk while you're in B-school. Prop-trading is essentially dead. You'll be lucky to get on a D1 desk.

So hedge funds are the way to go? My career counselor has mentioned the same thing about prop shops but then I was thinking trading was dying 5 years ago and it's still here.

OMM shops like IMC, Akuna, Optiver - probably won't be around in 10 years?

 

[destriero]

So hedge funds are the way to go? My career counselor has mentioned the same thing about prop shops but then I was thinking trading was dying 5 years ago and it's still here.

OMM shops like IMC, Akuna, Optiver - probably won't be around in 10 years?

Why would you want to be an automatic? Get a analyst job with a small fund.

 

[ETJ]

Depends on your job - a multi stock OMM with good two sided paper will be afforded a ton of leverage at OCC if you are well hedged. So let's say your cash on cash is 5% - with leverage that can become 50% to 100% depending on the paper, how many exchanges you stream too. That's gross before all costs and one you've built the technology you want as much feedstock as you can get. Keep in mind you don't "trade" - you make markets and depending on where you stream too the technology will adjust your quotes and size. So a lot of it is autopiloted - especially in the deeps and the cheaps. Citadel just hired a crew from Point 72 who were all single stock folks.
Cost of money is critical because of the leverage. Just for a benchmark think of simple reversal/conversion return and leverage it up.
What are the two biggest lies of OMMs? I'm hedged and I'm perfectly hedged.
Most days 3 MM shops are about half the volume - gives you a sense of the competition and tech costs.