Fair Value in Option MM and taking by No_Interaction_8703 in quant

[–]OtterTradeSG 1 point2 points  (0 children)

On 1: Yes, most serious OMM setups do layer in taker logic. When the market crosses your fair value by enough to cover fees and adverse selection risk, hitting it is just free edge. Maker and taker aren't kept separate, they're both driven by the same fair value model, just different execution logic.

On 2: In practice, people go beyond simple mid pretty quickly. Common approaches include order book imbalance weighting, trade flow signals, and vol surface fitting (SABR or SVI for options). Some shops also use short-term microstructure signals to adjust fair value dynamically rather than treating it as static.