Really the main reason I left the AMEX was the quote width's. They were too small to compensate for the risk you take having to provide *liquidity*.
In other words, you always got picked off by wise guys with "good charts" that did a great job predicting the next big order to walk into the stock. But you were compensated for it via your bid/ask spread. When exclusive listings went away in 1999, spreads narrowed as you now had to match every other floor in America.
Sad story I know, but the point is that with no edge in your markets, you became sitting ducks as a market maker or specialist.
Fast forward to today, and quotes are blissfully wide again. Some of these high beta names have like 80 cent wide quotes on ATM options, even though they may be listed everywhere. And who can blame the MM's. I wouldn't want to be a hero here directionally, not to mention there's no way in the world to guestimate the right option volatility to quote.
Anyway, time to watch The Call now. Erin who?
3 comments:
how do you go about making markets off the floor? I know there are a lot of shark electronic market makers...Citadel I hear the most when it comes to the options.
Obviously the computer software has got to be a major expense.
I've wondered that for awhile though.
Need to be licensed??
you'd need to buy or lease a "seat" from an exchange that has offsite seats. ISE and BOX are all off site (they're virtual exchanges). CBOE is a hybrid, not sure exactly what the others do.
You'd need software and capital, although you get much better margin treatment as a MM so it's not as capital intensive as it would appear given the size of positions you would get.
And yes, you'd need some licensing, not sure exactly what now.
dr_sean, if you are interested, I can direct you to an upstairs mm firm. Shoot me an email if you would like the specifics.
prattdan@hotmail.com
dan
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