To: Skeeter Bug who wrote (35376 ) 11/6/1998 4:38:00 AM From: accountclosed Read Replies (1) | Respond to
But Skeets, if the guy is interested in the business of an options market maker/member of the floor crowd...There is a whole world here. For a stock market maker or specialist, the product is relatively simple, stock. An inventory item. Most of the game is living off the bid/ask spread. But for an options trader, the inventory is not quite so simple. Different strike prices, different expirations, etc. A lot of effort is dedicated to remaining "flat" here too, but flat has a more complex definition. What I mean is it is basic options logic that a long call and a short put = synthetic stock, and a long put and a short call = synthetic short. Options traders have a lot of effort dedicated legging into market neutral positions by offsetting synthetic stock with real shorts and synthetic shorts with real stock. But that balance is dynamic as options decay/expire and stock/option positions need to be either rolled to cover new inventory or liquidated. Options inventories are constantly changing and net positions constantly need to be monitored. Also judgment comes in as to how much of the portfolio should be hedged as hedging is not free. Risk/return measurements are made constantly. Net long options is an enviable position, too. Net short options can be suicide as MB has pointed out. So going flat against a net long options position is essentially locking in profits, while going flat against a net short options position is also self-preservation.
