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Profitability of Options Market Making
- Thread starter bidask
- Start date
I'd be interested in hearing what a current (or semi-current) options market maker has to say about the % of successful options trader today compared to 15 years ago. Clearly it was easier to make money 15 years ago... what sort of edge did a "decent" trader then have compared to what a "decent" trader today might have.
Quote from Q12:
I'd be interested in hearing what a current (or semi-current) options market maker has to say about the % of successful options trader today compared to 15 years ago. Clearly it was easier to make money 15 years ago... what sort of edge did a "decent" trader then have compared to what a "decent" trader today might have.
look how many firms sold out in that time. Hull, LETCO, Stafford, OConnor, Mercury, CRT. Not to mention the traders who left because theres limited edge now. IMO, The key today is technology
All I can do is speak for Euronext Amsterdam because that is where I traded. Bid-ask spreads were 50 cents wide and now on the screen 5 to 10 cents. Now all prices are in line ( centered around the theoretical value), back than if the paper was buying calls and selling puts we raised our quotes on the call side and we lowered our bids on the put side . You can do the calculations with the large bid-ask spreads those days lol. These days all depends on software and technology and also how much volume you can trade. Because of the small profit margins you have to do a lot of volume. Compared to the "old days" you have a lot more risk for less profit.Quote from Q12:
I'd be interested in hearing what a current (or semi-current) options market maker has to say about the % of successful options trader today compared to 15 years ago. Clearly it was easier to make money 15 years ago... what sort of edge did a "decent" trader then have compared to what a "decent" trader today might have.
10 years ago we had 17 traders on 4 floors making markets. By 2004 we sold out of that operation and we left the floor entirely.
Someone hit the answer these days its about technology and its cost. There are very few equity based options which are single listed and open outcry. So that means youâre a streaming market maker in all the other issues. You sit at a computer and you let your programs run every thing. The feeâs are substantially higher per month for all that access and technology and the spreads are tighter all over the place. Those things make it a hell of a lot tougher then it used to be. There are one or two firms around which I know of who have emerged with pretty decent deals for those who have mm experience and want to go back to that. They have slashed the costs to the bone and they will allow you access to access to their capital and technology without you putting up a ton of your own. Youâre left to deal with how to get pieces of the order flow and the payment for that order flow. There are plenty of good traders making a good buck doing this but rather then trading 4 or 5 books like they would have in the past they now have to trade 30 or 40 books.
There are different advantages and pitfalls in doing this on different exchanges. Basically the ISE, CBOE and PHLX are getting most of the volume but the rules for parity and priority on each is different.
Someone hit the answer these days its about technology and its cost. There are very few equity based options which are single listed and open outcry. So that means youâre a streaming market maker in all the other issues. You sit at a computer and you let your programs run every thing. The feeâs are substantially higher per month for all that access and technology and the spreads are tighter all over the place. Those things make it a hell of a lot tougher then it used to be. There are one or two firms around which I know of who have emerged with pretty decent deals for those who have mm experience and want to go back to that. They have slashed the costs to the bone and they will allow you access to access to their capital and technology without you putting up a ton of your own. Youâre left to deal with how to get pieces of the order flow and the payment for that order flow. There are plenty of good traders making a good buck doing this but rather then trading 4 or 5 books like they would have in the past they now have to trade 30 or 40 books.
There are different advantages and pitfalls in doing this on different exchanges. Basically the ISE, CBOE and PHLX are getting most of the volume but the rules for parity and priority on each is different.
Quote from bidask:
if it's so tough then why are there so many options market making firms out there? if it's all about speed, cost reduction, and technology, then shouldn't one firm that does everything right take over the entire market?
No one firm is willing to take on all the risk of the entire market.
Quote from bidask:
if it's so tough then why are there so many options market making firms out there? if it's all about speed, cost reduction, and technology, then shouldn't one firm that does everything right take over the entire market?
if a firm have unlimited capital then it is possible to dominate but that's not going to happen. Without unlimited capital you can never fully hedge even if they sell/buy in milliseconds. It only take 1 surprise news event to blow out a position.
can you please give an example of hedging?
how much capital do you need? how does the business work?
how much capital do you need? how does the business work?
Quote from magicz:
if a firm have unlimited capital then it is possible to dominate but that's not going to happen. Without unlimited capital you can never fully hedge even if they sell/buy in milliseconds. It only take 1 surprise news event to blow out a position.