The Pre Market Tape

[admin]

the options market maker is delta hedging and I don't think he likely holds the sold put long enough,,or more likely , he just naked shorts the common stock for his hedge

Well, yes, but if we sell puts, that blunts the put buying by the shorts and set you up for a nice return at the same time, either collecting highly inflated premium or stock at distressed levels.

A marketmaker isn't an investor, or may be, but the best way to imagine what they do with their delta hedges is  like an accordion: :  The firm takes in a position, that involves firm capital risk.  The firm trader (marketmaker) immediately delta hedges his risk, so that he is both long and short the positon.  You're as a size buyer or seller, are out as a manager, because the marketmaking firm (such as goldman sachs) now is fully hedged.  But, as soon as the market allows, he works off that delta hedge, keeping his overall position as even as he can.  This can happen very fast, or may take some time.  Imo, this is one of the primary reasons IOC may dip down and stay down for a spell, because the marketmaker is ( or at least attempting to ) influencing trading til he can even his position.  Don't think this isn't done.  I've observed it for many years.  So, in reality, the marketmaker is in a primary position to make money on the trade, but he's' primariliy interested in facilitating the trade and exciting the transaction without losing firm capital,  second is making some money onthe trade, which they do, imo, too often too much.

With all respect, I understand that, Trans. I realize the market maker will delta hedge those outsized put buying by selling shares short, and that theMM have more leeway in doing that. In fact, if the MM didn't have more leeway, there would be little difference with outright shorting by the shorts.

However, what I was suggesting was a way to profit from this by selling OTM puts. It's a low risk strategy (as long as you make sure you have funds to buy in), and at the same time, it counterbalances all that put buying, so I expect the effect to be to smooth out all the violence from the short a bit, depending whether it's done in volume.