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> large volume OTM calls causing MMs to buy stock and inflate price

I’m a former options market maker. Seeing large volumes of retail flow is very different from seeing a giant institutional order. It affects what goes into the market versus gets internally crossed and what gets hedged and to what degree and how.

Individual investors have a moderately bad track record day trading. They have an abysmal one with options. I’m a decade out of the business, but we almost always defaulted to taking retail flow at risk.



Thanks for your insight!

So basically, the individual investor is screwed because they can’t figure out institutional orders, but market makers can that allows them to hedge?


I believe JC was saying that individual investors make bad choices, on the whole. Institutional less so.

Consequently, as a market maker who wants to limit their risk if a trade goes sideways, optimal hedging for each looks different.

(Part of this is probably related to the distribution of orders. I've heard large enough individual flow tends to mostly self-average.)




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