Profitability of Options Market Making

[xflat2186]

That would be the case only in the thinnest of markets. If you’re looking at options which are listed on several exchanges then THI being on the NBBO or not is not going to be an issue. Don’t forget that even if your order is sent to somewhere like the PSE or the BOX if the NBBO bid and offer is on another exchange you’re still going to get that price.

I don’t see the scenario you described as an issue in the vast majority of books

 

[Euler]

Quote from xflat2186:

That would be the case only in the thinnest of markets. If you’re looking at options which are listed on several exchanges then THI being on the NBBO or not is not going to be an issue. Don’t forget that even if your order is sent to somewhere like the PSE or the BOX if the NBBO bid and offer is on another exchange you’re still going to get that price.

I don’t see the scenario you described as an issue in the vast majority of books

Practically speaking, I agree. But even a high-liquidity issue traded on all 6 exchanges COULD be subject to this scenario. It depends partly on how MM's react to one another's prices, which surely no one knows with certainty but which IB can probably estimate better than almost anyone.

I'd say that the biggest factor is the proportion of customer orders such a B/D MM handles. Given that no one B/D handles a dominate proportion, the effect of this scenario should be limited.