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I might very well be speaking from ignorance, but here's what bothers me about this article: it seems to assume that the rules for me, the individual investor,
by mikestew 6y ago
I might very well be speaking from ignorance, but here's what bothers me about this article: it seems to assume that the rules for me, the individual investor, are the same for market makers. For instance, selling naked calls for me is lunacy. But do large institutions (the market makers) have hedges or mitigations for naked calls? The reason I ask is because the article assumes, "blah, blah, blah, so the MMs have to use 'delta hedging'...". I dunno, do they? Or because they trade umpteen-jillion contracts a month, the "rules" don't necessarily apply?
OTOH, the last AAPL call contract I bought seemed like it had an awfully pricey premium for deep ITM options (says the guy trading AAPL contract for going on 20 years).
- swedishturnip 6y agoThey might or might not hedge a call, depending on whether they like the risk and their (usually relatively strict) risk limits allow it. Typically they are not in the business to take outright directional bets on stocks though - so yes they would delta hedge. But part of trading upteen-jillion contracts a month also means that among those trades there will be some that at least partially offsetting, meaning they might not need to delta hedge as much.