Options trading in 7 days: With Volcube by Gleadall Simon

Author:Gleadall, Simon [Gleadall, Simon]
Language: eng
Format: mobi, epub
Publisher: Volcube
Published: 2014-09-14T23:00:00+00:00

The option in the context of any existing position. When a trader is considering a trade, or a market maker shows prices on which he may reasonably be expected to trade, his existing inventory has to be a consideration. Does the trade add to or reduce the position? Will the overall risk of the portfolio be higher or lower after the trade? For market makers, this is an essential consideration when pricing options. It also reflects wider issues around market order flow. If the flow of orders has generally been to sell options (to market makers), it is likely that options have become cheaper and that market makers are sitting on option portfolios that are broadly long in nature. Traders will therefore have to weigh the risk of adding to this position against the extra reward (in the form of cheaper options). Adjusting pricing to suit a trader’s current book and in a way appropriate for the current flow of orders is a crucial skill that traders must learn to be successful.

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