Questions from your Pirate podcast trade execution examples.
Do "they" track changes in your quoted offers? ie you have a stock offer in against earlier trades and the broker shows you a trade that will get you delta short. Do traders cxl their offers w/o getting in trouble? Do they lighten their displayed option size while waiting for the trade to hit the tape?
Or it is a busy day and you trade an order while waiting for the broker's shown trade to hit the tape that has you hedging deltas in the same direction as the broker's trade. What does compliance make you prove?
Is this specific to SEC or is it the same for CFTC products too?
How do you know what the theoretical value of the option/spread is if you don't know where your deltas will be hedged?
How do you know what the theoretical value of the option/spread is if you don't know where your deltas will be hedged?
The MM prices the option vs the price that incorporates market impact. So if they are pricing a .50 delta option and think the slippage in the stock is $.10 then they need to pad their quote by 5 cents just to allow for delta impact.
Regarding the other questions, every firm will have different guidance for their traders depending on their understanding of the rules. The concern would be a pattern of behavior that can be interpreted as manipulative. How compliance monitors, flags, and investigates behavior is also unique to each firm.
Holy shit that ape is jacked.
Questions from your Pirate podcast trade execution examples.
Do "they" track changes in your quoted offers? ie you have a stock offer in against earlier trades and the broker shows you a trade that will get you delta short. Do traders cxl their offers w/o getting in trouble? Do they lighten their displayed option size while waiting for the trade to hit the tape?
Or it is a busy day and you trade an order while waiting for the broker's shown trade to hit the tape that has you hedging deltas in the same direction as the broker's trade. What does compliance make you prove?
Is this specific to SEC or is it the same for CFTC products too?
How do you know what the theoretical value of the option/spread is if you don't know where your deltas will be hedged?
The easiest question first:
How do you know what the theoretical value of the option/spread is if you don't know where your deltas will be hedged?
The MM prices the option vs the price that incorporates market impact. So if they are pricing a .50 delta option and think the slippage in the stock is $.10 then they need to pad their quote by 5 cents just to allow for delta impact.
Regarding the other questions, every firm will have different guidance for their traders depending on their understanding of the rules. The concern would be a pattern of behavior that can be interpreted as manipulative. How compliance monitors, flags, and investigates behavior is also unique to each firm.
SEC and CFTC have different rules.