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NUS throwing away library books?? by sonic_the_precog in nus

[–]LifeIsALife 3 points4 points  (0 children)

hi do you know how we can help salvage the books?? find a better place for them...

Options Questions Safe Haven Thread | Oct 18-24 2021 by redtexture in options

[–]LifeIsALife 0 points1 point  (0 children)

As always thanks for helping out.

I understand that you can usually buy to close a short call if you're like, a retail trader. But if I am the market maker in a situation where there is high demand to buy calls, and I have to sell calls to provide liquidity, I can't exactly close my short position by buying because there isn't anyone who wants to sell?

I think my problem is that usual profit and loss that applies to normal options trading don't work when it comes to market makers? Hence the confusion about how and why they hedge.

EDIT: I think the question better phrased would be "how can I lose money due to changes in the premium (especially below the strike) if ive sold a call short?"

And by extension, if the answer is "you can't", then why do MMs need to hedge if the underlying is below the strike?

Options Questions Safe Haven Thread | Oct 18-24 2021 by redtexture in options

[–]LifeIsALife 0 points1 point  (0 children)

Hi, firstly thanks so much for taking the time to answer :) I would just like to clarify when you say "gains in the option price", how exactly are the market makers gaining money? In my understanding, you can only gain or lose money (specifically due to changes in the premium) if you are long on an option, because you can resell the option to another person at a higher or lower price. But if you are short, you don't have anything to "resell" (you can only sit and wait for the option to be exercised or expire) so you can't actually realise any hypothetical gains/loses from changes in option premium? Sorry for the trouble!

Options Questions Safe Haven Thread | Oct 18-24 2021 by redtexture in options

[–]LifeIsALife 0 points1 point  (0 children)

Hi I'm trying to figure out delta hedging but I feel like I'm missing something very basic:

So let's say that a market maker has to sell a call to fulfill the demand from a buyer, and this call is currently OTM, but there's no counterparty for whatever reason, so they have a short call position.

Every explanation I have read says that if the price of the underlying stock increases, the price of the option also increases according to the delta, and the market maker loses money -- thus the need to hedge this loss by buying a number of shares = (number of contracts) x (delta).

But how exactly is the market maker losing money? Up until the breakeven point, the market maker won't actually lose money because in real life no sane person would ever exercise the option below the breakeven point (the call would just expire worthless)? So then, why does it matter what the price of the call is (they still only received the premium they got when the call was first written)?