I didn't intend it as sarcasm. I am not really interested in fighting with you or anyone.
Record Bet: Trader Sells $18 Million in VIX Calls
- Thread starter PoundTheRock
- Start date
I didn't intend it as sarcasm. I am not really interested in fighting with you or anyone.
Then perhaps you should listen and learn. The first time I have heard of someone hedging on time / price. Wow.
You ask the most elementary and buffoonish questions yet have the gall to judge a sell-side trader (JG). Umm, the answer to your (second) question is "on delta"
Since there is so much confusion around the term offset, I took Suiya's sound advice and researched the term a bit. It's my mistake.The confusion comes because I thought I was using a the futures term and option people also use the offset for a position to hedge as well.
I meant for the MM to handle the trade so that there is no gamma or delta risk anymore ever. It has been some time since I have seen the details, but at one of my sessions, I was shown what MMs use with option positions when they want minimal risk. If that doesn't apply in this case, then please show me why it doesn't apply.
My reasoning was that the market maker was most likely surprised by this large order suddenly appearing, so rather than trading it (delta-hedging) wouldn't he simply neutralize it (futures term offset) within the hour? After all he needs to deal with both position reversal by the first party and an increasing position by the first party. So it would seem to be the more prudent route.
I meant for the MM to handle the trade so that there is no gamma or delta risk anymore ever. It has been some time since I have seen the details, but at one of my sessions, I was shown what MMs use with option positions when they want minimal risk. If that doesn't apply in this case, then please show me why it doesn't apply.
My reasoning was that the market maker was most likely surprised by this large order suddenly appearing, so rather than trading it (delta-hedging) wouldn't he simply neutralize it (futures term offset) within the hour? After all he needs to deal with both position reversal by the first party and an increasing position by the first party. So it would seem to be the more prudent route.
The fear and nastiness in your posts is palpable so I do believe you hear voices in your head. So precisely what is your fear - that SLE or others are unable to answer or that you are God and will answer for everyone on this board or something else again? I have made a promise to SLE that I will honor, but I am not sure why you must interject all the time.
You have identified your own behaviour with "You're attempting to come off as knowledgeable ". I smiled when I read that since I have seen it in many people in the past. In fact the opposite is true. I am simply trying to learn the finer points from people who know more than me about options. You constantly put words in my mouth that I don't say. I am not sure why you need to do that with me and other in the past.
Here is where I recently stated it in another thread and the proof that you read it is earlier in this thread in your own answer.
http://www.elitetrader.com/vb/showthread.php?t=282195
"A stock is actually an option, or perhaps more accurately a warrant. Options buy and sell risk, but ultimately risk happens!"
If I offended Suiya or JGills with my incorrect usage of the term offset, then I apologize to you.
Wow, no. In answer to your question... I want you to stop with the BS and listen to those more knowledgable and experienced, or at the very least don't denigrate someone with far more (of both). jgills is a MMer. You sound like a dilettante with the "hourly or daily hedge" idiocy. You wouldn't feel the need to constantly apologize if you weren't talking out of your ass.
Can we get back to the topic or do you want to continue?
In my thinking - Offset = any trade that reduces (neutralises) the risk, spreads the risk, offsets the risk. Be it delta hedging in the underlying, other options, other correlated instruments.
So while a MM might ideally love to perfectly hedge (the prudent choice) the option with other options, or better yet, find a buyer of the option and facillitate liquidity and simply take the spread......in the real world this does not happen and so the MM usually needs to spread the risk the best way they can. Usually in the most liquid risk reducer possible. Also dont discount that sometimes the MM wants to simply buy volatility and then hedge in the underlying and trade the gamma.....options, options so many choices.
Who would you propose they 'neutralise' with - assuming this means reduce, the risk?
Liquidity is the role of the MM and they provide this and in return have a bid ask spread as a buffer as well as models and parameter choices.
Great for a MM are when there is 2 way action in the options, both buyers and sellers. Its gold to just keep spreading, taking clip and having no risk, but this is the real world.
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Now a Q for you....
What do you mean by - "After all he (the MM) needs to deal with both position reversal by the first party ?
and "an increasing position by the first party. "
Sounds odd and even contradictory ....
In my thinking - Offset = any trade that reduces (neutralises) the risk, spreads the risk, offsets the risk. Be it delta hedging in the underlying, other options, other correlated instruments.
So while a MM might ideally love to perfectly hedge (the prudent choice) the option with other options, or better yet, find a buyer of the option and facillitate liquidity and simply take the spread......in the real world this does not happen and so the MM usually needs to spread the risk the best way they can. Usually in the most liquid risk reducer possible. Also dont discount that sometimes the MM wants to simply buy volatility and then hedge in the underlying and trade the gamma.....options, options so many choices.
Who would you propose they 'neutralise' with - assuming this means reduce, the risk?
Liquidity is the role of the MM and they provide this and in return have a bid ask spread as a buffer as well as models and parameter choices.
Great for a MM are when there is 2 way action in the options, both buyers and sellers. Its gold to just keep spreading, taking clip and having no risk, but this is the real world.
/////////////
Now a Q for you....
What do you mean by - "After all he (the MM) needs to deal with both position reversal by the first party ?
and "an increasing position by the first party. "
Sounds odd and even contradictory ....
I see, for me, the term offset means something different. What you describe is hedging activity in my terms. Offset (to me) is more like an arbitrage.
For me MM or specialist or "the hammer" are what we are talking about. Not a sell-side analyst or an internal investment house trading floor.
Great point about the perfect world. Maybe what I was told at a lecture was just theory. Option liquidity is a major concern to make money whereas most stocks are liquid enough for the sizes I trade.
What I mean is this.
I believe nobody knows what is going to happen next in the market. The MM is this case took the side of the trade that would ultimately lose ( now that we know the future). Besides worrying about his own risk on the first position, future orders could come in as well. After the first trade settles and some time later the "winning position" could add to their position ( that the MM would now have to deal with ) or reverse their position ( that the MM would now have to deal with). Because anything could happen, what the MM actually does must work under all future scenarios as well. That's all I was saying. Does that make more sense?
As well, under fast moving market conditions, other odd things happen. Caution under all potential scenarios in fast moving market conditions is a watchword for MMs.