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Ok, but what moron was selling them the puts , and not seeing the pattern after a couple of days of this ? Sebi logic seems questionable.
by naveen99 1y ago
Ok, but what moron was selling them the puts , and not seeing the pattern after a couple of days of this ? Sebi logic seems questionable.
- lopatin 1y agoPresumably retail options traders and less sophisticated firms
- naveen99 1y agoYeah, I think volatility in the indian market was way too low, and Jane street just juiced it. normally that would be a losing proposition, but too many existing players were short volatility habitually… answer is not to kick Jane street out, but to enjoy the taxes Jane street pays on the gains…
- lumost 1y agoLow volatility is good for everyone engaged in long term asset management. Jane Street just found a way to make everyone else less money while making a small amount for themselves.
- MichaelZuo 1y ago> Low volatility is good for everyone engaged in long term asset management. According to who? There are plenty of pension funds nowdays that have people specialized in picking up mid sized companies after big drops.
- mrcode007 1y agoit’s a known effect. Without going into details here, you can calculate first crossing time of a barrier in a stochastic process and observe that often the first crossing time decreases as the volatility increases. From there you can set one barrier at 0 (default) and draw your own conclusion.
- pjc50 1y agoI'm reminded of how the UK financial regulator banned "binary options" trading, since this was nearly always a scam run against unsophisticated retail investors who wanted to gamble and lost the majority of their "investment". (one of the Yes Minister irregular verbs: I am providing liquidity to the market, you are long vega, he is a degenerate gambler)
- steveBK123 1y agoRetail
- msgodel 1y agoYeah that seems like it should push the premium higher. Even if it's some institution with very bad quantitative models eventually the careless put writers should run out of shares/capital to secure the puts with and get liquidated.
- pclmulqdq 1y agoI assume the moron in question was using Black-Scholes or some similar formula to price those options, and refused to update their prior when they lost money day after day. This happens quite a bit in derivatives markets.
- isatty 1y agoBut why would they refuse to? They're there to make money too, after all.
- kragen 1y agoMaybe they have buddies at SEBI who can freeze their counterparty's assets and return the half-billion dollars they lost back to them.
- andrepd 1y agoThat's not really how it works, the market making firms would essentially have to update their vol curves in response to that signal (BS being essentially just a coordinate change from price to volatility).
- rybosworld 1y agoBlack-Scholes is rarely used to actually price options. It's most commonly used to back out what the current implied volatility is.
- pclmulqdq 1y agoThings like Black-Scholes (using past volatility of the underlying to model the probability distribution in the future) are often used by market makers to price options, but the vanilla version never is.
- rybosworld 1y agoAny market maker pricing options with Black-Scholes won't be a market maker for long. Black-Scholes is just a customer-facing description of the option (i.e, it provides greeks that everyone can understand). But it isn't used as a starting point. In practice, MM will back out what the implied volatility is from current prices. Then a stochastic volatility model is calibrated against that. https://en.wikipedia.org/wiki/Stochastic_volatility https://en.wikipedia.org/wiki/Stochastic_volatility
- throwaway2037 1y ago> what moron In India, it is clearly retail investors in the recent retail derivs boom.
- deleted 1y ago[deleted]
- dmurray 1y agoI think the point is that retail investors were selling the puts, they predictably sold every day (or more likely, they predictably bought calls which is almost equivalent), and there were no other sophisticated market makers in the market. That changes the description of part 2 to "subsequently experience retail investors placing large options trades with them" which is much more defensible market making behaviour - their early buying was in anticipation of later demand and really did involve taking a risk. The truth is probably somewhere in between.
- dmurray 1y agoTo add to this, that behaviour would typically be OK in the US, with a good compliance department to keep you away from the worst of the grey areas. If the SEC did investigate you for this, an important part of the case would turn on the extent to which your actions were "bona fide market making". And the regulator would also be more introspective about the market structure that allowed this to happen - why is there only one market maker? How did we allow a derivatives market much more liquid than the underlying?
- torbid 1y agoHuh? I don't think the SEC would (just) apologize for letting you get away with manipulation of a significant portion of the US index funds just because they should have noticed you sooner.
- StopDisinfo910 1y agoPeople buy puts for coverage. It's not strictly a speculative tool.
- deleted 1y ago[deleted]
- Shocka1 1y agoHave you considered that in US markets market makers sell the puts and simultaneously short approximate number of shares to hedge?