Record Bet: Trader Sells $18 Million in VIX Calls

[jj_]

OCC - Orange county choppers?

This has nothing to do with exercises. They were probably exercised/converted to shares by the broker with the account, and then sold in the takeover, but in this case the money in the account was never claimed. Part of the allegations and not being able to prove whose account its was. Thats one of the reasons the case was interesting. There was even a Mr X. involved!
This money was then returned (as I understand it) to the original sellers of the options. Not sure how the calculations were made.

Thanks for the explanation, although I'm still none the wiser because it sounds like you're talking about an early exercise, but early exercise needs to be requested by the account that is long ITM options; I would've thought a broker would/should have no reason to make that executive decision. And if it's not early exercise then the options would be exercised at expiry anyway. But maybe I'm wrong.
But heck, who cares anyway. There are more important things to worry about.

Btw OCC = Options Clearing Corporation.

Cheers.

 

[SIUYA]

Thanks for the explanation, although I'm still none the wiser because it sounds like you're talking about an early exercise, but early exercise needs to be requested by the account that is long ITM options; I would've thought a broker would/should have no reason to make that executive decision. And if it's not early exercise then the options would be exercised at expiry anyway. But maybe I'm wrong.
But heck, who cares anyway. There are more important things to worry about.

Btw OCC = Options Clearing Corporation.

Cheers.

the options were only about 3 weeks from expiry. When they were purchased it was an opening options trade (no options were already open at that strike) hence it raised quite a few eyebrows that 2000+ OTM options at a strike with open interest of about 100 contracts (Oz at that time was 1000 shares per contract) with 3 weeks to go were opened.
Exercises used to be optional, but after so many people forgot, or their back offices forgot that it became an exchange rule - any ITM options had a default to be exercised.....it was generally the safest result. I assume the broker simply closed out the shares and put the account to cash on expiry or at the take over price.

In Oz at the time OCH was the options clearing house....I probably should have guessed OCC.

 

[SIUYA]

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.
.

subset of the same thing in my thoughts.

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.

Thats why you have models and spreads + trading nouse. The future becomes a non issue to a large extent as the model has allowed for that, and traders experience works out how best to offset, or when to panic/not panic

The rest becomes supply and demand and moving parameters around to keep spreading. (in case the person comes back to sell more - OR reverse the trade - or others do the same [settlement is irrelevant]) All rather simple. Sometimes the MM takes on too much, and adjusts and takes a loss and keeps trading - its a numbers game.
Othertimes they get great hedges/offsets and reduce the book and carry on - its a numbers game.
Othertimes the opposite guys get it wrong and the MM gets some immediate positive results and did not get enough - its a numbers game....and hindsight is dangerous thinking shouda couda wouda.

From my perspective MMs want volume, they want two way volume and they want volatility to keep that volume coming in.
It seems like you are persisting in thinking in terms of an individual trade, whereas often these trades just become part of a portfolio. (??????)

 

[jj_]

the options were only about 3 weeks from expiry. When they were purchased it was an opening options trade (no options were already open at that strike) hence it raised quite a few eyebrows that 2000+ OTM options at a strike with open interest of about 100 contracts (Oz at that time was 1000 shares per contract) with 3 weeks to go were opened.
Exercises used to be optional, but after so many people forgot, or their back offices forgot that it became an exchange rule - any ITM options had a default to be exercised.....it was generally the safest result. I assume the broker simply closed out the shares and put the account to cash on expiry or at the take over price.

In Oz at the time OCH was the options clearing house....I probably should have guessed OCC.

Ok understood, cheers mate

 

[StarDust9182]

subset of the same thing in my thoughts.



Thats why you have models and spreads + trading nouse. The future becomes a non issue to a large extent as the model has allowed for that, and traders experience works out how best to offset, or when to panic/not panic

The rest becomes supply and demand and moving parameters around to keep spreading. (in case the person comes back to sell more - OR reverse the trade - or others do the same [settlement is irrelevant]) All rather simple. Sometimes the MM takes on too much, and adjusts and takes a loss and keeps trading - its a numbers game.
Othertimes they get great hedges/offsets and reduce the book and carry on - its a numbers game.
Othertimes the opposite guys get it wrong and the MM gets some immediate positive results and did not get enough - its a numbers game....and hindsight is dangerous thinking shouda couda wouda.

From my perspective MMs want volume, they want two way volume and they want volatility to keep that volume coming in.
It seems like you are persisting in thinking in terms of an individual trade, whereas often these trades just become part of a portfolio. (??????)

Great post. I will contemplate some of the comments in this thread in the future (when I get more time). Thanks for your interesting comments.

I really agree with your point concerning different languages. Hedging and arbitrage are completely different concepts in my world. Revert to the mean and trending are also different. I make lots from options picking winners and sometimes spreading.

I have looked for my notes from the CBOE advanced options course and the business card of the CBOE instructor who approached me after and asked me how I did it. I can't find it immediately but I have it somewhere as I was going to study arbitrage more when I had more time ..... which never came. (Just one of hundreds of ideas to research one day.) For now I am too busy with other ideas to look further. I know several MMs including options MMs that I see from time to time and I don't want to bother them with this issue until I am better prepared.

I stay away from this forum since their are some odd ducks in it ( including me as well I guess LOL) and my options trading is very profitable. I have no need to discuss trading here since IMO I have forgotten more concepts than many on this site know about. Yet, it doesn't stop some individuals from attacking foreign ideas as a threat for some reason. Some private conversations have identified clear errors written by certain option individuals and my favorite comment about one individual is too funny to post. It takes a lot of types to make a world I guess.

It irks me that some attack newbies for no reason. If they were secure, why would that happen? I rise to defend newbies since I was one once. Other forums don't do this attacking as much, it is rampant in the one forum I avoid. These individuals know a lot, but not everything. I have much to learn on some of the concepts raised this thread.

Thanks for being such a good commentator. You know what you are talking about. I have definitely learned some better questions to ask to get to a deeper understanding of MMs buzzwords. I do appreciate that. I have had two excellent months so far, so now I have to pay the piper and fill out my tax forms yet again.

 

[drownpruf]

Great post. I will contemplate some of the comments in this thread in the future (when I get more time). Thanks for your interesting comments.

I really agree with your point concerning different languages. Hedging and arbitrage are completely different concepts in my world. Revert to the mean and trending are also different. I make lots from options picking winners and sometimes spreading.

I have looked for my notes from the CBOE advanced options course and the business card of the CBOE instructor who approached me after and asked me how I did it. I can't find it immediately but I have it somewhere as I was going to study arbitrage more when I had more time ..... which never came. (Just one of hundreds of ideas to research one day.) For now I am too busy with other ideas to look further. I know several MMs including options MMs that I see from time to time and I don't want to bother them with this issue until I am better prepared.

I stay away from this forum since their are some odd ducks in it ( including me as well I guess LOL) and my options trading is very profitable. I have no need to discuss trading here since IMO I have forgotten more concepts than many on this site know about. Yet, it doesn't stop some individuals from attacking foreign ideas as a threat for some reason. Some private conversations have identified clear errors written by certain option individuals and my favorite comment about one individual is too funny to post. It takes a lot of types to make a world I guess.

It irks me that some attack newbies for no reason. If they were secure, why would that happen? I rise to defend newbies since I was one once. Other forums don't do this attacking as much, it is rampant in the one forum I avoid. These individuals know a lot, but not everything. I have much to learn on some of the concepts raised this thread.

Thanks for being such a good commentator. You know what you are talking about. I have definitely learned some better questions to ask to get to a deeper understanding of MMs buzzwords. I do appreciate that. I have had two excellent months so far, so now I have to pay the piper and fill out my tax forms yet again.

You making bank from all of those hourly delta-hedges? Cool.