Whether an options writer or buyer has better edge? Why?

[nitro]

These questions are too open ended and have no right answer.

Here is one that is far more interesting.

You are an options market maker. Paper IMs you for a 1000 lot whatever, butterflies, bull spread, whatever. He is willing to give up .15 of edge tied to stock.

Who would you rather be?

 

[atticus]

Quote from nitro:

These questions are too open ended and have no right answer.

Here is one that is far more interesting.

You are an options market maker. Paper IMs you for a 1000 lot whatever, butterflies, bull spread, whatever. He is willing to give up .15 of edge tied to stock.

Who would you rather be?

Whatever gets me out with .10 net, Long or short is meaningless.

 

[nitro]

Quote from atticus:

Whatever gets me out with .10 net, Long or short is meaningless.

Right. The institution is giving you edge to put on the position. But most market makers are terrified of being in a position like this for more than a day or two.

The point is, from a market maker perspective, the initiator of a position have usually thought about a trade far longer than you have, and THEY have the edge. You are only willing to take the other side if delta risk is mitigated instantly, and if you think you can lock in some of that edge pronto.

We were given this sort of edge recently on DNA butterfly. We were greedy, we wanted to make $500k. Instead, when the DNA takeover was announced three days later, we ate a $100k loss.

On the retail level where people are doing 10 lots, 50 lots, even 100 lots, the game is totally different. Those trades may or may not carry information, and we adjust as the market tells us to. Someone wants to do 1000 lots with you, you better be terrified. As a market maker, we always respect the side that initiates a trade, buy or write.

 

[atticus]

Quote from nitro:

We were given this sort of edge recently on DNA butterfly. We were greedy, we wanted to make $500k. Instead, when the DNA takeover was announced three days later, we ate a $100k loss.

Bull fly neutral to 95?

 

[nitro]

Quote from atticus:

Bull fly neutral to 95?

Ugh.

Ja

The other side was honorable. They gave us two full days to get out.

 

[increasenow]

Quote from OddTrader:

Do you think whether an options writer or buyer has better edge in the market?

What are the main reasons or conditions, and why?

easily the writer...the only reason more do not 'write or sell' options is because the 'average Joe' does not have the huge cash needed to write/sell options...especially, naked or 'uncovered' options...probably the best and easiest trading vehicle is writing/selling options...BUT..again, most people do not have near the $$$ capital to do this so...it is unrealistic for most people reading this thread...just being real...

 

[Dackster]

Quote from increasenow:

easily the writer...the only reason more do not 'write or sell' options is because the 'average Joe' does not have the huge cash needed to write/sell options...especially, naked or 'uncovered' options...probably the best and easiest trading vehicle is writing/selling options...BUT..again, most people do not have near the $$$ capital to do this so...it is unrealistic for most people reading this thread...just being real...

Absolutely!


If there was ever an 'edge', then not needing the f*cking money in the first place, is a good place to start.




Dackster.

 

[zdreg]

the retail buyer has the edge over the retail seller.selling options puts you in the insurance business. the professionals are the market makers and warren buffett. they know how to hedge themselves. the retail seller doesn't know how to hedge himself properly and his position is margined to hilt.
this combination is a recipe for disaster when a storm hits.

 

[atticus]

Quote from zdreg:

the retail buyer has the edge over the retail seller.selling options puts you in the insurance business. the professionals are the market makers and warren buffett. they know how to hedge themselves. the retail seller doesn't know how to hedge himself properly and his position is margined to hilt.
this combination is a recipe for disaster when a storm hits.

Yeah, Buffett did a wonderful job with that $8B marked-loss on those SPX short puts [written binary put].

 

[heiasafari]

Quote from increasenow:

easily the writer...the only reason more do not 'write or sell' options is because the 'average Joe' does not have the huge cash needed to write/sell options...especially, naked or 'uncovered' options...probably the best and easiest trading vehicle is writing/selling options...BUT..again, most people do not have near the $$$ capital to do this so...it is unrealistic for most people reading this thread...just being real...

I think that is a very dangerous assumption. If you go out writing options left and right thinking you are playing against average joe, well at some point you will get third degree burns all over.

I don't know about you guys but whether I go long or short I always assume the guy against me is at least as smart as I am...