Why Is The Obvious Not So Obvious?

[fairvalue]

What can or cant a Market Maker do in such a situation? He will be restrictet?

• assymetric risk associated with options
• writing an option is associated with a fixed loss (get that premium) and unlimited loss
• buying an option is associated with fixed loss (pay the premium) and unlimited profit

Questions:

• therefore a Market Maker won't write Put/Call options, if there is a possibility that the market/price will go against him?
• What tells us this in relation to the future market - I think the mentioned DOM the pointer, but I have to close for today

nice session btw ...

just for everybody reading along, correction:

• assymetric risk associated with options
• writing an option is associated with a fixed profit (get that premium) and unlimited loss
  
• buying an option is associated with fixed loss (pay the premium) and unlimited profit

 

[fairvalue]

for a start..guessing is for those who don't know the answer..we don't have to guess..as..we don't need to know the answer !

you are correct about 3 things..mainly..but last one is consolidation..or..small movements up and down..compared to larger movements

the important level has been covered in the last post..but you must use your brain..that way it will stick in your head..only way to learn anything is to have a very good reason to learn it..look up Montaigne 1580..

I looked it up:

• Montaigne was an early and important french contributor to the enlightment age.
  
• 1580 refers to "The Essais", the main work of Montaigne, covering 107 different themes. As I got the gut feeling that the whole of it is worth reading, is their any specific essaie you can recommend?
• A takeaway that caught my eye while reading about him was that "human capacity is naturally inhibited in grasping reality in its fullness or with certainty" - perfectly matches the topic of this thread

 

[fairvalue]

Well, I have to write that down - when coming to books tipps

I (really proud of myself) read it and can recommend it: The Divine Comedy by Dante (1320)

Warp up: Man travels through hell to find his (dead) girlfriend - think it pretty much sums it up - the journey while trying to be a successfull trader

 

[M4-1]

I looked it up:

• Montaigne was an early and important french contributor to the enlightment age.
  
• 1580 refers to "The Essais", the main work of Montaigne, covering 107 different themes. As I got the gut feeling that the whole of it is worth reading, is their any specific essaie you can recommend?
• A takeaway that caught my eye while reading about him was that "human capacity is naturally inhibited in grasping reality in its fullness or with certainty" - perfectly matches the topic of this thread

well..the most famous essay of course

Of the Education of Children

read the very last paragraph first..then come back and say what is the most important point that Montaigne makes in this letter to Madame de Foix

http://hs.umt.edu/ghr/documents/152MontaigneEducationofChildren.pdf

 

[fairvalue]

well..the most famous essay of course

Of the Education of Children

read the very last paragraph first..then come back and say what is the most important point that Montaigne makes in this letter to Madame de Foix

http://hs.umt.edu/ghr/documents/152MontaigneEducationofChildren.pdf

Not the easiest thing, so I'll try to make the best out of it:

• in regard to the last paragraph, the most important thing is, to have appetite and interest [in learning] - lets say fun or devotion - otherwise, he states, there will only be a bunch of book-laded asses [pupils]

 

[Vindago]

Like my primary school teacher used to say: "school should teach pupils to learn, to be curious about the world and passionate to learn about it" this remained with me all my life. I was never much of diligent student, I would be very good in subjects that interested me and learn just enough on the other subjects. But then, with time, the interests shifted sometimes and I came to be passionate about things I hated at school, how curious

 

[fairvalue]

must stop posting the screenshots as full images..they really are big !

View attachment 245938

okay, before running around like a squirrel under the Christmas Tree and start making assumptions and jumping to conclusions I start with describing:

• 1M chart ES Mini Future, 7 to 8 Dec
• Volume on the x axis
• 3 lines
  • upper line und lower line mark the extremes of the period
  • middle line - no idea, what could it be?
  • are these historical reference lines? the lines do not start at a date, like the boxes do. But when I look at them at a higher time frame, there is no reference. So for now, upper line and middle seem to be correlated with highs and lows - but I can't travel back in time, so why the heck are these lines all over that chart. They must have any meaning. But which one?
• 3 areas / boxes
  • boxes start of different times, no logic or rule obvious for me, why they start, exlusion principle:
    
    • they dont start at the same time
    • they dont have the same range
    • they dont have the same location (turning point, high, low or other)
    • they dont show the same action (correction, trend reversal or other) after their starting point
  • So, what do they have in common?
  • Are they related to DOM?
  
  

 

[M4-1]

VO..i think FV needs something !

VO has file..make FV smile
it one of kind..to open mind
not like the most..with full of boast
the truth so real..will make you squeal

so ask VO..for him to show
and keep it quiet..as it not shite
when read it keep..your mind so deep
do think of say.. what's in essay

you see FV..all not what be
for fools galore..do naught but roar
the facts are true..for me and you
so open mind..be one of kind !!!!

M3

 

[M4-1]

okay, before running around like a squirrel under the Christmas Tree and start making assumptions and jumping to conclusions I start with describing:

• 1M chart ES Mini Future, 7 to 8 Dec
• Volume on the x axis
• 3 lines
  • upper line und lower line mark the extremes of the period
  • middle line - no idea, what could it be?
  • are these historical reference lines? the lines do not start at a date, like the boxes do. But when I look at them at a higher time frame, there is no reference. So for now, upper line and middle seem to be correlated with highs and lows - but I can't travel back in time, so why the heck are these lines all over that chart. They must have any meaning. But which one?
• 3 areas / boxes
  • boxes start of different times, no logic or rule obvious for me, why they start, exlusion principle:
    • they dont start at the same time
    • they dont have the same range
    • they dont have the same location (turning point, high, low or other)
    • they dont show the same action (correction, trend reversal or other) after their starting point
  • So, what do they have in common?
  • Are they related to DOM?

jesus..you have better start reading quickly..what the hell are you muttering about

forget about DOM and all that shite..the only time you look at that is just before you place a trade..and just before you exit a trade..call it fine tuning your order!

ANYTHING you add to a chart is there as a guideline..that is all..the human brain is no different to a computer chip..just zillions of times smaller.. everything depends on charges..positive and negative charges..this is exactly the reason why a bird can fly across a vast ocean and return to the exact spot that he left from..think about that..amazing..and all because of a charge so small..you would probably need an electron microscope to see it !

by having the coloured boxes on your chart..you are creating a charge in your brain..simple..factual.. scientific..and..real!

on the other hand..look at the DOM..chaos..what do you expect your brain to do

 

[fairvalue]

well..you are fairvalue..so you should know

anyway..the point is this..we don't work as mm's or brokers..so..like all the other plebs we can only try and make some sense out of all this crap !

maybe the likes of mr. morse might step in and educate us..as he seems to have been a mm in the past..so should have a lot more to offer than our way of thinking !!

my take is this..but remember..it really doesn't matter..that is the main point..this is nothing more than a simple excercise to try and get the plebs taking about something that is very interesting..and..very important in relation to how the index futures really work..we don't care about anything else but the ES..period !!!

so..OI as per your Google search..number of contracts open in the ES..that simply means..at the current time the average daily OI is around say 2.3 million contracts..therefore..of all the people in the world trading the ES futures CONTRACTS..as the fugure is just not for near month of Dec 2020..but for all Open Interest..we have 2.3 million buys matched with 2.3 million sells..as..for every buyer there has to be a seller !!!!

next..let's say today the OI change on yesterday is -40,000 and the Vol traded is 1,340,000

our new OI is 2,300,000 less 40,000 or 2,260,000

so..of the 1,340,000 traded..we had 1,300,000 spec trades today..or..Algo trading plus a few plebs

and..only 40,000 has come off the longer term traders commitment..or the OI

the BIG question of course..is..how much of the remaining 2.3 mil OI is attributed to mm's..hedge funds..large institutions..bla..bla..bla

we are only interested in the mm's..as they are the ones who have the means and opportunity to move price..and..the reason being..that is there business

enter the options market..as the majority of plebs buy options for the limited risk and unlimited reward..then the mm has to sell the options to them..hence the mm is exposed to unlimited loss for a small premium..therefore..to protect himself he must hedge his positions in the futures market..

if we look at options OI the put/call ratio is currently high..as in around 2:1..so..there are twice as many puts traded as there are calls..

so..we now assume that the majority of options traders are betting on a market fall..hence the high put/call ratio..but..who controls prices mostly..well.. unless there is a black swan event..where everything normal goes out the window..the mm's control prices in the options market..but..as the traded options are based on the futures expiry..then..if the put/call ratio is high..as it is now..the mm's don't want the ES price to fall..which COULD be a reason why it just won't go down at the moment..even with ALL the bad news about !!!!!

interesting stuff..and hopefully some expert will jump in and put us right..but..don't hold your breath

M3

when I write down "agreed" it means for me that I agree with the conclusions as they sound coherent to me:

• Agreed on plebs at the options market (first account I blew up 20 years ago =)
  • market maker has to cover his ass, while he is obliged to write options
    
  • he can't by an option for coverage, as I understood it, because the liquidity in the option market is too low
  • instead he covers his postion in futures market, because there he can find enough liquidity to do so#
• The Open Interest Put/Call ratio of the Option Market
  • as we learned, these postions are not closed, they are open
  • as an assumption, in that option market, there are more option buyer then underwriter
  • so, in that theory, if the option contract is open it has to be covered by the Market Maker to save his position - to keep it simple: plebs go Long (Call/Put) and the Market Maker goes Short (Put/Call)
    
  • So the Open Interest consits of Puts and Calls; the Market Maker has to cover these positions - but how exactly:
    "To cover the risk of a short call position, at any time prior to the options expiration, a trader can buy a futures contract to deliver to the call owner if the short call is exercised. Owning the futures contract to deliver into the call means that the assignment risk is covered; hence the phrase covered call."
  • That means, in this situation, the Money Maker buys 2 times more Puts at the Future Market which is SELLING futures in releation to BUYING futures to cover his Call underwriting.
• Above it is stated, that the Money Makers try to let the price be stable, that they won't get bitten by a drop in prices. Why don't they just cover on the futures market? Isn't there enough liquidity? Do they wait for an increase in price to cover these Puts?

questions about questions ...