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But who's backing those options with the actual stock to the tune of $13B per day?
by supernova87a 6y ago
But who's backing those options with the actual stock to the tune of $13B per day?
- baq 6y agomarket makers who write the options but want to hedge the risk by taking a related position in the market itself. they don't want risk, they just want the premium, so they don't care about the price of the underlying most of the time. what they do is continuously adjust the position as the price changes and time to expiration gets shorter. you can imagine the amount needed to hedge gets very nonlinear the closer to expiration and the closer to the money the option is, hence a single short time to expiry near the money contract can cause a lot of volume.
- socialist_coder 6y agoisn't this a serious exploit in the whole market maker system?
- baq 6y agoit is an exploit; not sure if serious, as conditions required to trigger it are quite extraordinary. couple hundred million loss isn't a big deal for them but pricing models will be updated for sure.
- defen 6y agoMarket makers delta hedging OTM calls and then unwinding them as the stock comes back down.
- knowaveragejoe 6y agoMarket makers?