Option Market Making : Part I : An introduction (Volcube Advanced Options Trading Guides) by Simon Gleadall

Author:Simon Gleadall [Gleadall, Simon]
Language: eng
Format: mobi
Publisher: Volcube
Published: 2013-12-22T23:00:00+00:00

Resting orders

Option markets are almost always made in the context of existing orders and markets in other options and strategies. Existing orders/markets are known as ‘resting orders’ or ‘resting markets’. For simplicity, let’s just refer to resting orders but mean both resting orders and resting markets.

Suppose a market maker shows a market of 10 cents bid, offered at 20 cents in a January call option with a strike of $120 worth (to his mind) 15 cents. Let’s suppose the client shows an order to pay 17 for 100 lots. The market maker decides not to sell these ‘17s’ for now; perhaps he is hoping the client will pay more than 17 at some point? When the client learns that the market maker is not hitting his 17 bid, he may decide to leave the order ‘resting’. This means that the order can, at least temporarily, be relied on, or in the common market parlance, the order can be leaned on. In other words, the market maker can assume that the 17 bid is still available until he hears otherwise (or until a reasonable time has passed at which point the order is probably ‘under reference’, meaning it might or might not still be good).

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