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I will not disagree with you here Ira, for the most part, for I have not
been a market maker, I can only watch what happens to the price of the
options during the course of a trading day. I do know that the options
market makers do not have to execute a trade, if they immediately see that
it is not in their best interest. That is why they will not open the
market, at least on the OEX, many times before 10:00 or so, and, especially
on expiration day, towards the close, if they see your order will expire
worthless, they will just ignore it. It has happened to me, and others I
know, and when they do, you have absolutely no recourse in the matter. The
very nature of options gives the market makers the advantage, even ignoring
what was said below. Each day, hour, they are worth less and less, so, the
market makers, from the get go, have the advantage.
Kohath
> You seem to miss some very important facts. Without you there is no
market and
> the market maker can't make a dime. Look at how many stocks, futures and
> indexes have little or no option volume. How would you like to stand
there all
> day, have nothing to trade and pay the huge monthly fees. The other thing
to
> remember is that he is always on the other side of the trade. Having been
a
> market maker, I'll tell you there are more market makers that blow out
then are
> making millions and a lot are just hanging on by the skin of their teeth.
If
> you don't know how to trade them then stay away and don't complain. if you
> understand what is happening you can make as much if not more then the
market
> maker, because you only have to trade when you want to or when your system
tells
> you to. the market maker has to make a market on every order that comes
into
> the pit whether it is a one lot or a 1000 lot. He only has to take what
he
> calls out for. How many of you would like to pay the overhead of a market
maker
> and always be on the wrong side. I don't believe many of you would have
the
> constitution to do that. Day trading and position trading is a piece of
cake
> compared to market making. Ira
>
> kohath wrote:
>
> > The facts, I believe, on the options market is that the options market
> > makers make tons and tons of money. I heard that last year and the year
> > before they made several billion on the internet options. Just look at
the
> > way the options are traded. 50 cent to 2 dollar spread. If the market
> > starts heading down/up in the morning the options market makers will not
> > open the market for the first half hour, to maximize their
profits/minimize
> > their loses. The market makers charge a 10% to 20% premium on options
on I
> > would submit an educated guess of 75% of the time in the morning.
(Watch
> > the price change from 9:30 to 10:00, I never buy options before 10:00
> > because of this). When the market is headed up they charge a premium on
the
> > calls, and the minute the market reverses they dump the price on the
calls,
> > to keep the suckers locked in. Same with the puts/market headed down.
> > (That is why you can make more selling options than buying, with much
more
> > risk). You can buy a call at 5 X 5 1/8 in a quite market, the minute
the
> > market starts moving, the price changes to 4.75 to 5.25. The market
makers
> > don't make the 200%+ that a trader can, but they make that 5% to 15%
> > hundreds/thousands of times per day, so the 200%+ is peanuts to them.
> > Kohath
> >
> > ----- Original Message -----
> > From: THE DOCTOR <droex@xxxxxxxxxxxx>
> > To: Chris Jackson <chrisj@xxxxxxxxxx>
> > Cc: BrentinUtahsDixie <brente@xxxxxxxxxxxx>; Group, Real Traders 2000
> > <Realtraders@xxxxxxxxxxxxx>; <realtraders@xxxxxxxxxxxx>
> > Sent: Thursday, July 29, 1999 1:48 PM
> > Subject: Re: Exits/Options
> >
> > > An options pricing generates a price which - by definition -creates
equal
> > > probability for the buy and the seller. The concept of an options
model
> > is to
> > > calculate a value which if you traded at with an infinite number of
> > repetitions
> > > would balance out exactly between buyer and sell.
> > >
> > > What most people confuse is the concept of how frequently
buyers/sellers
> > will make
> > > money. Sellers of options will be profitable more frequently than
buyers
> > ... but
> > > sellers can only earn a finite premium and can lose a multiple of the
> > premium they
> > > might earn. Buyers will be profitable on less occasions than sellers,
but
> > buyers
> > > can only lose their premium and can earn a multiple of their invested
> > premium.
> > >
> > > Buyers will make money when actual volatility exceeds implied(as has
been
> > the case
> > > in the US equity market for much of the last 5 years). Sellers will
> > profit when
> > > actual is less than implied(a condition you would expect to exist most
of
> > the time
> > > .... in effect about 2/3 of the time the market or stock should make
a 1
> > sigma
> > > move or less over the life of the option). The challenge is that you
only
> > really
> > > get the balance between buyers and sellers when you sample a large
> > population of
> > > trades over a long period of time.
> > >
> > > The reality as to if you should buy or sell is based both on you
> > expectation of
> > > direction(bullish, bearish or neutral)and your view of volatility over
the
> > expected
> > > life of you trade.
> > >
> > > Chris Jackson wrote:
> > >
> > > > I have just read the new options book by William Gallagher - The
Options
> > Edge.
> > > > He did
> > > > an empirical study of actual traded options prices ( 1 on 15 futures
> > > > markets) and it came out that there was no clear bias for option
writers
> > or
> > > > buyers -
> > > > something of a shock even to him.
> > > >
> > > > The positive side of that is that there does not appear such a bias
to
> > overcome
> > > > when
> > > > buying options i.e. makes buying the right kind of options a
reasonable
> > > > proposition.
> > > >
> > > > BrentinUtahsDixie wrote:
> > > >
> > > > > If you know you have a weekness exiting trades then you should
> > emphasize
> > > > > that and vice versa.
> > > > >
> > > > > This is overworking a fine point regarding entrys and exits but
one of
> > the
> > > > > things that happens when learning about trading is that someone
comes
> > along
> > > > > and makes a statement that sounds true on the surface and then
many
> > others
> > > > > pick it up and go around stateing it as fact when it may not be
> > factual at
> > > > > all. Things like "90% of all options expire worthless" and "the
market
> > is
> > > > > never wrong". You should question these kind of statements rather
then
> > > > > parroting them. If you find youself doing this without questioning
and
> > > > > seriously thinking about the issue then you are also likely to be
a
> > trader
> > > > > that is always jumping in the market with the wrong crowd at the
wrong
> > time
> > > > > just because someone said it was good idea, not because you did
your
> > own
> > > > > research and developed your own skill at timming your entrys.
> > > > >
> > > > > Brent
> > >
> > >
>
>
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