# Books on market makers?



## Bin57again (23 September 2008)

Anyone know any good books on the tricks of market makers? I'd love to know how they prepare for session openings, rob the unsuspecting (guys like me) create volatility, run stops, etc. It might help me understand the landscape a bit better on the 5 and 15 min charts...


----------



## Trembling Hand (23 September 2008)

Bin57again said:


> Anyone know any good books on the tricks of market makers? I'd love to know how they prepare for session openings, rob the unsuspecting (guys like me) create volatility, run stops, etc. It might help me understand the landscape a bit better on the 5 and 15 min charts...





What markets are you trading because the ASX doesn't have MM in  stocks


----------



## Bin57again (23 September 2008)

It doesn't?
I'm mostly interested in the workings of the SPI.


----------



## UPKA (23 September 2008)

Trembling Hand said:


> What markets are you trading because the ASX doesn't have MM in  stocks




err incorrect, plenty of market makers on ASX mate e.g. Citygroup, IMC, JP Morgan, Optiver, tibra etc...


----------



## Trembling Hand (23 September 2008)

UPKA said:


> err incorrect, plenty of market makers on ASX mate e.g. Citygroup, IMC, JP Morgan, Optiver, tibra etc...




They are not market makets in th sense of NYSE market makers that most people know about. They are not required to "make a market" in individual stocks. We have them in oppies & warrants but not ASX listed stocks.

They may from time to time make a market for their own needs but that doen't make them MM in the true sense of a MM.


----------



## Timmy (23 September 2008)

UPKA said:


> err incorrect, plenty of market makers on ASX mate e.g. Citygroup, IMC, JP Morgan, Optiver, tibra etc...




The general use of the term 'market maker' refers to those who will *always *make a market (show a two-way price) in a security etc.  (That's the theory, I know many market makers manage to weasel out of their obligations with any number of excuses).  Using this commonly accepted defintion there are no market makers on ASX stocks.  There may be accepted conventions and understandings, but there are no market makers under an obligation to make prices.

Edit: beaten to it by TH


----------



## Bin57again (23 September 2008)

Thanks guys

Bit lost on the semantics - don't the likes of Optiver and JPM that UPKA mentioned offer 2 way prices - isn't that what brokers do?
Who are the US/FTSE MMs?

Anyway, that's off point (although thanks for the explanation) - I was just interested in how the bigger guys trick us little guys...so, for example, do they know in advance of fades to gaps, sucker gaps, etc ahead of market open...?

Bin

PS - I found a book by Josh Lukeman but it looks crap - same old stuff, nothing on MMs' tactics/thinking


----------



## Trembling Hand (23 September 2008)

Bin57again said:


> - I was just interested in how the bigger guys trick us little guys...




Not all of us. :


----------



## Timmy (23 September 2008)

This is a bit of an old article, not sure how relevant it is now.  It is about the MMs on the floor of the NYSE:

http://w3.tribcsp.com/~fredj/ney.html

There is a book: "Secrets of the SOES Bandit" by Harvey Houtkin that discusses MM activities on the NASDAQ.


----------



## cuttlefish (23 September 2008)

For the options market the market makers are typically making their money from arb trading and slippage as I understand it and are typically working with a delta neutral position.  Relatively boring stuff but with minimal overhead and large volumes they make plenty of money I'm sure.


----------



## Bin57again (23 September 2008)

What's a delta neutral position?


----------



## Trembling Hand (23 September 2008)

Bin57again said:


> What's a delta neutral position?





When they have no opinion on this......


----------



## Bin57again (23 September 2008)

Nice.
No, very nice.


----------



## Trembling Hand (23 September 2008)

Another type of Delta Neutral trade is described here,

http://www.investopedia.com/terms/d/deltahedging.asp


----------



## barney (23 September 2008)

Trembling Hand said:


> Not all of us. :




:iagree:   :bowdown:  ............. 

Cryptic yet accurate !!!  (I was looking for an opportunity    ....

In the next life TH, you could well come back as one of those "big boys" .....  

Then again, ......  The credibility/appreciation for being on the "underdog" side is hopefully more rewarding     .....     Cheers,  Barney.

PS.   That "DELTA" definitely 'aint neutral ................  !!!!!


----------



## aacantona (23 September 2008)

Spot on about the mm obligations - they are apparently supposed to comply with affirmative market maker obligations for several series approx 70-80% of the time, however, can use any number of excuses like excess volatility to break from these obligations. They all claim to provide continuous obligations, but when they fail to provide, fall back on RFQ obligations.


----------



## sails (23 September 2008)

Option Market Making: Trading and Risk Analysis for the Financial and Commodity Option Markets by Allen Jan Baird is one book that has often been recommended on a US options forum.  Not sure if it's available at the ASF bookshop, but you can have a look at it here at Amazon where you can check out the cover, index and  see an excerpt as well.  I haven't read it so can't personally recommend it.


----------



## wayneL (23 September 2008)

Trembling Hand said:


> When they have no opinion on this......




I would love to go long on Delta.


----------



## skyQuake (23 September 2008)

Barrier oppie/warrant mm's will push prices towards barrier level if its already close. Some good trades and fades there.

Just to clarify. MM's exist in Aus on oppies and warrants. None on futs or stocks.


----------



## RobinHood (23 September 2008)

For what you are looking I recommend "Trading and Exchanges: Market microstructure for practitioners" by Larry Harris.  600 pages thick. See the index for further details.

http://www.amazon.com/o/ASIN/0195144708/002-1841013-6555219?SubscriptionId=1T8GXYG45A6Y2VJ9YKR2


----------



## whitey1982 (8 February 2009)

hey, im a trader at liquid capital, and am ex imc. 

both companies give their trainees 'option volatility and pricing' by natenburg.


----------



## hardcoremike (13 February 2009)

I sat with an options trader at JPMorgan as an intern this summer and had no idea wtf was going on


----------



## rossw (19 February 2009)

whitey1982 said:


> hey, im a trader at liquid capital, and am ex imc.
> 
> both companies give their trainees 'option volatility and pricing' by natenburg.




you went from imc to liquid?
surely that's a downwards move?


----------



## cutz (23 May 2009)

Hi Guys,

Does anyone have any insight on whether our ASX options market makers are fully automatic computer systems, or is there human intervention involved on the other side of a trade ?


----------



## cooper1308 (23 May 2009)

cutz said:


> Hi Guys,
> 
> Does anyone have any insight on whether our ASX options market makers are fully automatic computer systems, or is there human intervention involved on the other side of a trade ?




I think a bit of both... Majority of it is automated however there are still traders watching the book.

From what I understand TimberHill & Optiver are more weighted towards automation. IMC, Tibra, Liquid ect all have a little more human intervention.


----------



## cutz (24 May 2009)

Thanks for the reply cooper1308,

I was just curious because some illiquid series appear to have the human touch.


----------



## cooper1308 (25 May 2009)

cutz said:


> Thanks for the reply cooper1308,
> 
> I was just curious because some illiquid series appear to have the human touch.




No worries. Stocks with a smaller market cap have different obligations such as wider spreads, only have to quote 60% of the time ect.....

Once I called up a market maker for an FMG series that I couldn't get a quote on....This is how it went:

MM: "which option did you want?"
Me: "FMGxx"
MM: "Buying or selling"
Me:  "Selling"
MM: "4c"

I was like What the??....Knowing that was well away from market, so I turned it around

Me: "Sorry mate I mean buying"
MM: "19.5c"

4c/19.5c.... 

If there was a takeover at a certain level or something of that nature then it is excusable.... but this is jsut criminal.


----------



## skyQuake (25 May 2009)

If you're really desperate for oppies, but the spread is huge, have a look at warrants. Their spread is generally very tight; but incredibly overpriced. Good for a few days trade at the best.


----------



## alphaman (25 May 2009)

FMG is a Flex option isn't it?  My understanding is that with flex options they don't even have the obligation to provide quotes. 

Just trade the US options. You'll forget about ASX very quickly.


----------



## rossw (25 May 2009)

cooper1308 said:


> I think a bit of both... Majority of it is automated however there are still traders watching the book.
> 
> From what I understand TimberHill & Optiver are more weighted towards automation. IMC, Tibra, Liquid ect all have a little more human intervention.




where you'd get that info?


----------

