Does the counter-party change the mathematics of option trading? I never found that even mentioned in the best option text book I ever read. It seems Sheldon Natenberg doesn’t think it matters. The interaction with the market maker lasts an instant, the trade execution. From then on the option market takes over. One watches the stock and the option to decide if action is needed. Since calls are wasting assets I often place a GTC buy order at 10% of the original premium which, if executed, frees up the underlying for further trades. BTW, all my option trades are limit orders. That’s like fishing, put bait on a hook and throw it in the water. Sooner or later a fish bites. If not, find better fishing grounds or better bait.
WHAT EVERY OPTION TRADER NEEDS TO KNOW. THE ONE BOOK EVERY TRADER SHOULD OWN.
The bestselling Option Volatility & Pricing has made Sheldon Natenberg a widely recognized authority in the option industry. At firms around the world, the text is often the first book that new professional traders aregiven to learn the trading strategies and risk management techniques required for success in option markets.
Other good sources are books by and about successful traders. They cover a lot of ground but, again, I don’t recall mentions of market makers. Stock exchanges are to investors what casinos are to gamblers. Both make money on the volume of trades or bets. One of the functions of market makers is to execute trades when there are no other counter-parties.
Understanding Market Makers
Many market makers are brokerage houses that provide trading services for investors. They make markets in an effort to keep financial markets liquid.
Market Maker Definition: What It Means and How They Make Money.
The Captain