Option Spreads, Credit my Debit Message Board

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Strategies & Market Trends : Option Spreads, Credit my Debit

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To: jjs_ynot who wrote (909)	9/18/1999 2:54:00 PM
From: KFE	Read Replies (3) of 2317

Dave, I think a little discussion of option theory is relevant to this board. In an ideal situation option market makers can flip for 1/8's and 1/4's(maybe the DELL pit) but usually they have to manage and adjust their positions constantly to stay delta neutral because of gamma. This constant adjustment is why I don't think that it is possible for the retail investor to trade this way. Transaction costs (bid/asked spread and commissions) would be prohibitive. The market makers like to trade boxes and other arbitrage and will always be looking to be hedged. This is why you can often get good executions on spread orders because it gives the market maker two options to trade against. Positive-negative gamma: this is precisely why I don't think that covered call writing is a long term winner. It is always a negative gamma situation and needs a sideways market to be efficient. A lot of people here won't like this statement but it is true. Regards, Ken

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