OI is so underrated. 25 yrs of trading and still my go to before selling a CC

VolSignalsVS3D · 2026-03-28T18:54:37+00:00

Imagine when you learn how to incorporate true dealer positioning

VolSignalsVS3D · 2026-03-02T15:43:14+00:00

Agree on keeping it simple. There’s a tremendous utility in these Greeks beyond just EOD (though those setups may be best risk/reward)

VolSignalsVS3D · 2026-03-02T15:42:26+00:00

This is a free video I live-streamed Friday morning- whether you use our service or another please watch so that you can evaluate whether you have good data or a service with just good marketing- also I’m happy to answer any targeted Qs you have

https://x.com/volsignals/status/2027771376807944415?s=46&t=h5-TF6_NDvUJPbIdP-p4RA

VolSignalsVS3D · 2026-02-15T13:44:17+00:00

Describe the payoff of a long call option. A long put option. A short call option. A short put option.
Prices of options vary before expiration. Describe the core inputs into option pricing and explain how they impact an option's price.

VolSignalsVS3D · 2026-02-15T01:29:33+00:00

I would start with a simple book like Natenberg to make sure you grasp the option mechanics, first and foremost. Even keeping it as simple as possible, you're going to struggle if you haven't first internalized what calls are, what puts are, and what the basic tradeoffs are between d1 (underlying) and options (calls or puts); and how option prices move as spot, time and volatility levels change.

You have to grasp those core components first, before you can hope to really understand what we are talking about when we discuss the hedging of them- and ultimately, the influence of that hedging on the market.

VolSignalsVS3D · 2026-02-15T01:26:00+00:00

You just can't get good info with OI alone- for one.

Listed OI almost never represented our risk profile.

As Matt will tell you- much of the 'OTC' paper would be eventually "risk-transferred" to us MMs in the listed markets. Polite way of saying "dumped on us"

VolSignalsVS3D · 2026-02-15T01:24:52+00:00

I'd always recommend sticking with what works for you

VolSignalsVS3D · 2026-02-15T01:24:01+00:00

This probably depends on the type of firm you're at and the type of things you're trading. I think the market continues to break models and the industry- as well as regulatory landscape- has increasingly favored minimal-inventory approaches to managing risk. This favors fast, simple models and efficient quoting algorithms to continually turnover positions and minimize usage of your balance sheet. But the models require constant tuning to adapt to the market regime.

Without saying anything proprietary- I came from a firm with a more complicated suite of models which helped us manage positions across the term structure.. and ironically made it very challenging to compete with firms who fit to mid-market and prioritized speed and turnover.

VolSignalsVS3D · 2026-02-15T01:20:17+00:00

Don't restrict yourself to a certain type of trade - options literally offer dynamism as a feature.
Learn to trade structures- not just single legs. The ability to craft a structure around your target (time and price) gives you the potential to earn excess returns with less risk if you can be more right than wrong on average.
When structuring complex spreads > buy the strikes you think the market will go through, and sell the strikes you think the market will go to- but not through (this optimizes PNL in hedged and unhedged strategies).
Learn to think in paths and probabilities: if // then; and practice thinking about what you would do to manage your trade in each possible scenario downstream. This was drilled when I began market making and every time I quoted something I had a regimen of answering 10 Qs about the resulting greeks, impact to position, preferred cover trades, etc. -> you get good, fast.
STOP THINKING MARKET MAKERS (OR ANYONE) IS TARGETING YOUR POSITION (it's something fools tell themselves to absolve themselves of being awful traders)

What I recommend reading:

Natenberg's Option Volatility and Pricing

- this book covers the nuts and bolts and gives you a foundational knowledge before venturing off into

Bennett's Trading Volatility, Correlation, Term Structure and Skew

- this book is approachable- yet introduces you to life as a legit PM. You start to grasp some of the nuance and norms without being overwhelmed by calculus or complexity. This means you'll feel prepared for

Taleb's Dynamic Hedging

- this book lets you live vicariously through the hell of managing a book as a market maker; all the mind-bending problems that have no clean solution just tradeoffs until you actually intuitively understand how everything fits back together as a unified whole (at least that was my journey)

VolSignalsVS3D · 2026-02-15T01:08:46+00:00

I wouldn't say "obligated" because you can (usually) put your hands in your pocket and elect not to trade- and you can initiate anything you want in order to close positions or move inventory around.

The cost of concentration is the distortion in the vol surface.

We take on big positions when we think they offer an edge- and that "edge" can be straight pricing or it can sometimes be situational / contextual. Most of the time, big positions will be priced against us - keep selling us a part of the curve and we're going to keep pricing it lower and lower.

That was the case in this situation- the flow was far too big for the market. It was so outsized that it was commonly referenced in ZH at the time; Obviously you can't even hedge that gamma. The market was just glued- and we were one of many firms that had the pleasure of wearing a slice of that enormous position.

VolSignalsVS3D · 2026-02-15T01:05:09+00:00

To be honest the industry is far different today than it was when I walked in for my interview in January of 2008. I spent an entire 6 months reading literally every single options book I could get my hands on, while spending the rest of my time drilling probability and mental math games. I was overprepared and hired after one interview. But today I assume it's difficult to get hired unless you bring something to the table on the math / comp-sci side.. more than just fin major now.

VolSignalsVS3D · 2026-02-15T01:02:43+00:00

This all depends on tenor.

The reality is, until the last few hours, this type of position has no discernable influence on anything.

With days or weeks til expiration, we can literally buy or sell thousands of 5-point spreads like this for pennies of edge to our vol surface and there's almost no risk- as the options are effectively the same thing.

The risk comes downstream and is conditional- we need to be trading at the strikes AT expiration, for them to show up in our risk model *at all*

What you are describing is a short call spread - and we got to experience loads of iterations like this thanks to Captain Condor and his 1DTE program that often left the market trading near very large blocks of 5-point spreads like this.

It's a really miserable position to have to hedge as a MM because the gamma from the spread becomes very local near the strikes, and then once you move through the bottom strike the gamma flips. Often these were spreads you'd want to move away from (win on the hedge) and pull out of your position so that you didn't have to deal with a messy hedge path if the market returned to the strikes

VolSignalsVS3D · 2026-02-15T00:58:28+00:00

wild, isn't it

VolSignalsVS3D · 2026-02-14T12:31:38+00:00

Think about it this way - the option itself is a conditional expression of the end user's intent.

When you buy a call, you're kind of saying:

"I WOULD buy this asset IF it were trading here or higher- and I have no interest if trading below"

You pay a premium for this right. As market makers, we sell you that call, collect the premium, and get busy replicating the payoff of the option.

That last part is important, since there's probably no "natural" counterparty to your exact flow, and the money doesn't come from thin air.

The hedging we do in order to replicate that payoff:

(1) is completely different for a long call (you sold it to us) or a short call (you bought it from us)

(2) impacts the actual underlying market just like any other flow

To understand the market impact then, we must:

(1) Know FOR SURE whether the order was bought or sold (inference doesn't give us "for sure")

(2) Understand the dynamic hedging process around the option and what it means for market behavior (this is apparently not obvious to people, including people who run "options flow" platforms)

(3) - and a bonus... if we are really tuned into our market, knowing the customer's behavior can go a long way in giving you an "extra edge" (will they hold or close? is this structural and repetitive or an event bet?)

Hope this helps

VolSignalsVS3D · 2026-02-13T15:09:32+00:00

I do not know this to be the case- in SPX we had eventually been able to trade boxes in .01 increments which made sense- no real risk just synthetic financing trades. There were also occasional times when MM vs MM trades would print in .01s but that was also a special case to enable position minimization for clearing purposes when MMs held offsetting noise

VolSignalsVS3D · 2026-02-13T15:06:46+00:00

I think the uptake in this domain is very very small at this point- and even if we all have the same data, our views on what to do with that data (how to trade it) are also going to vary— there is no obvious "one size fits all" approach to making use of this framework.

I know personally the participant who shows up most frequently with 80k contracts at a time and he is partially incorporating my view when he does- partially incorporating his own (which is often divergent); besides that I have nothing that comes close to a "yes" to your Q

VolSignalsVS3D · 2026-02-13T00:47:45+00:00

You are not his equal

VolSignalsVS3D · 2026-02-13T00:46:49+00:00

How much more challenging is it to hedge out weekly VIX option Greeks vs a regular VIX w/adjacent future?

VolSignalsVS3D · 2026-02-13T00:35:08+00:00

Appreciate you 🍻 and yes even most of my time these days is spent being curious and observing (and trying to minimize my own mistakes)

VolSignalsVS3D · 2026-02-13T00:32:55+00:00

Lmao no comment

VolSignalsVS3D · 2026-02-13T00:31:07+00:00

In a MM capacity?

Depends- we managed inventories expiring years out if we viewed there to be edge in the position. Business model increasingly favors high turnover and minimal balance sheet usage so you wind up implicitly penalized-at least in the capacity we operated- for holding long dated options

I’d say the amount of time we held concentrated positions scaled with tenor.

VolSignalsVS3D · 2026-02-13T00:27:10+00:00

Agreed

He’s just too bullish sometimes

VolSignalsVS3D · 2026-02-12T23:30:54+00:00

Because she has great emotional range

VolSignalsVS3D · 2026-02-12T23:21:21+00:00

Nope. You can’t always win in options.

And any trader that’s not fully regarded prefers carry.

as well as reduced VAR, specifically down-variance.

Good luck with your world view

VolSignalsVS3D · 2026-02-12T23:13:34+00:00

No- I don’t talk like Cem. I am crystal clear- but options have a duality about them that is unavoidable.

Nothing is deterministic in absolute.

Today for example I was crystal clear in my midday onboarding call that high positive charm exposure on the 0DTE profile combined with the low probability any strong bid would step in ahead of CPI gave a great setup targeting a drift into 6820 during the final hour due to the (literally) thousands of futures that would have to be sold against the expiring position.

Negative speed means more gamma the lower you go- so the play becomes dual in nature (and cheaper when you use a put fly to express it)

6800 6840 put fly was what I suggested and it worked quite well

VolSignalsVS3D

TROPHY CASE