PropFirm for Options trading

JackRab said:
I've been an options market maker for 10 years (index/single stocks/interest rate), so I know pretty well how the markets work...
MM's are active in any market. Their systems are pretty sophisticated, so most prices that fall outside their parameters will be traded through their algo's, especially when it's hegdeable. What you're aiming at, is beating them to trade these profitable prices... so you need to have an edge on them. Either by hedging differently, or by knowing more... or having a different risk parameter/appetite.
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In an active market the MMs get overrun by the crowd, so they have no control in such times.
They shall just provide liquidity if there is nobody else. Nothing more.
They can't buy the whole orderbook, and IMO they would violate their duties if they attempt to do...
Maybe we are talking of different kind of MMs?... I just mean the classical role of a MM...
 
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marsman said:
Hmm. I don't know where you got that "2.5x margin", as the margin requirements at IB are usually about 20% of the underlying spot per leg (depends highly on the option strategy, cf. their option margin table).

The underlying is far from being illiquid as its average volume is 818,469 shares/day,

From my side it's never indended to close early, instead when shorting then one better should let it expire.
Hedging has of course to be done if the trade turns against one. If one hedges with the underlying, then the position counts as "covered"...
One of course needs to have reserves for a possible hedging.

And: if you hold till expiration then volatility (HV, and also IV), liquidity, and B/A spreads don't play any role...
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If the stock doubles to $20ish (and it is already creeping up)... that 15.5 strike is 4.50 ITM.
That means, if you would've sold 100x this call... your loss is 45k. And your initial margin was about 20k? So now the total margin is 45k... plus any extra if you intend to keep the position...
So on your calculation of profit/loss with margin as the basis, you'll be down almost 150%. (125% actually, but I'm shooting from the hip).
So, risk/reward isn't that awesome ... because you'll earn max $3000 per 100 short calls if you get to trade at midpoint... but I see the risk at a big multiple of that...

Most people don't intend to close out early... but that's what happens when you can't pay up on margin calls....

But if you have a different risk appetite than go for it...
 
What is the p for a stock doubling its value? Especially in only 1 or 2 weeks.

Did you know that you can't get any margin call with some kind of trades? :D
Unfortunately I can't disclose it... :)
 
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marsman said:
In an active market the MMs get overrun by the crowd, so they have no control in such times.
They shall just provide liquidity if there is nobody else. Nothing more.
They can't buy the whole orderbook, and IMO they would violate their duties if they attempt to do...
Maybe we are talking of different kind of MMs?...
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How can we talk about different market makers...? All market makers have to provide bid/ask prices, but most of them actually want to trade as well. I consider non-official market makers who post bid/ask prices on the whole sets of strikes MM's as well... and they have to be well informed with sophisticated systems... because otherwise they will be run over by the MM's.. not the other way around.

I think you have a misunderstanding how things work. MM's can be overrun, but only by large player.. investment banks or institutionals who trade a large qty on one strike or strategy... not by the general crowd... you have got to be kidding me. MM's thrive on volume/volatility days.... And why would they want to buy the whole order book?? What...?
 
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marsman said:
Did you know that you can't get any margin call with some kind of trades? :D
Unfortunately I can't disclose it... :)
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If you have to post margin... there is always a margin call.. that happens daily, it's called maintenance margin. Which will be limited when you trade a spread or hedge your trade...

But if you think you've found the holy grail of free lunch... good on ya.
 
JackRab said:
If you have to post margin... there is always a margin call.. that happens daily, it's called maintenance margin. Which will be limited when you trade a spread or hedge your trade...

But if you think you've found the holy grail of free lunch... good on ya.
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I'm not finished yet with my studies, but I make good progress.
 
marsman said:
What is the p for a stock doubling its value? Especially in only 1 or 2 weeks.

Did you know that you can't get any margin call with some kind of trades? :D
Unfortunately I can't disclose it... :)
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That p will happen... however small it is.

As I said before, EMES was at $3 halfway in May. Then at $6 beginning of June, and hit $12 yesterday... So I guess for this stock it happend 2 times... hence the high implied vols.

https://au.finance.yahoo.com/q/bc?s=EMES&t=3m&l=on&z=l&q=c&c=
 
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