Secret 76ACT LIKE A MARKET MAKER
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One way to reduce or eliminate the cost of slippage is to act
like a market maker. The market makers are usually behind
most option trades. They usually sell at the asked and buy at the
bid price. They are the players who make the market and pocket
the slippage.
In options that don’t trade much, they’re the only players in
the market, and they provide the bid and asked price. With the
speed and instantaneous feedback of the internet and with much
lower commissions charged on the net, you can act like a market
maker.
As a public player, you have priority over the market makers’
bid and asked prices. As a result, if you set your limit price to buy
an option at the bid price and the only other player is the market
maker, you will get your order filled before him.
The market maker does have other advantages, such as margin
and low priced hedging vehicles, but if you are patient and
quick at changing limit option prices as the underlying changes
in price, you could get some excellent trade executions and
pocket some of that slippage.
One way to reduce or eliminate the cost of slippage is to act
like a market maker. The market makers are usually behind
most option trades. They usually sell at the asked and buy at the
bid price. They are the players who make the market and pocket
the slippage.
In options that don’t trade much, they’re the only players in
the market, and they provide the bid and asked price. With the
speed and instantaneous feedback of the internet and with much
lower commissions charged on the net, you can act like a market
maker.
As a public player, you have priority over the market makers’
bid and asked prices. As a result, if you set your limit price to buy
an option at the bid price and the only other player is the market
maker, you will get your order filled before him.
The market maker does have other advantages, such as margin
and low priced hedging vehicles, but if you are patient and
quick at changing limit option prices as the underlying changes
in price, you could get some excellent trade executions and
pocket some of that slippage.