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by noname123
4573 days ago
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Option bid/ask spread is much wider because 1) notional value is 100 shares as opposed to 1 share of stock, 2) has an additional mysterious value, volatility in the option pricing formula, 3) for OTM options, has volatility simile aka "black swan" properties that elevates the pricing and spread higher. It's not as easy to make money being a options marketmaker because you have to realize not all of your trades will be someone taking your bid/ask. Even so, you'll have delta-hedge your position with the underlying which is a imperfect hedge that is subject to jump risk. Typically a AAPL options marketmaker is taking orders from traders and has up to couple hundred of these AAPL with long name positions, and they have to balance out the greeks, delta and gamma. They may even have to buy some options themselves to hedge themselves and pay the market price. |
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