Flippers vs Wholesalers

post that could have been a tweet thread

Friends,

[This is an experiment — a short thought to subs that could have been a tweet. It’s super off-the-cuff and optimized for speed not grammar. Open to feedback on whether this is nice or if I’m in the inbox too much]

Imagine a well-telegraphed large option seller is quoting an option worth $3.

A leading market maker quotes $2.80-$3.00, hoping to buy it for $2.90 if the seller offers mid-market. The seller will be happy with an optically good fill especially considering the size.

This type of thing happens all the time because other market makers will join the market and often not “cut it” if it’s a large order. This is completely reasonable — $2.90 is the price that may balance the capacity of the risk-capital to take down the trade.

There are a few dynamics to note: