This is not quite how things work. Market makers don’t just take risk and not hedge. They would have hedged deltas (by shorting stock) and gamma/vega by selling other stuff (or this offset stuff they had sold previously). Impossible to say whether an MM would have made or lost money but usually gap moves like this cost MM on a net basis.
Re:Cisco Acquires Splunk
by theogravity on Thursday September 21, 2023 @07:52PM
(#37606050)
You're right, and it's something I should have mentioned.
I understood nothing of what you said, what is a good resource/starting point to understand the meaning of this?
Re:Cisco Acquires Splunk
by theogravity on Thursday September 21, 2023 @07:49PM
(#37606031)
https://www.investopedia.com/terms/o/optionscontract.asp
In terms of how the market maker is involved:
https://www.projectfinance.com/options-market-maker/
hedging:
Re:Cisco Acquires Splunk
by tempaccount420 on Thursday September 21, 2023 @10:19PM
(#37607119)
ChatGPT
Re:Cisco Acquires Splunk
by johnvanommen on Friday September 22, 2023 @03:16PM
(#37616418)
Buying options is a great way to go broke fast
Selling options, on the other hand...
It's possible someone was selling contracts as a hedge since the tech market has been really bad this week. A market maker was obligated to buy the contracts.
The person selling the contracts gets $22k in premium, and misses out on the pop. The market maker will absolutely exercise the contracts and profit.
(This is coming from someone who sold APPL calls expiring tomorrow for .08 at a high strike today)
Personal opinion: It's insider trading. You'd need a ton of shares to be able to sell $22k worth of contracts at a high strike unless you're doing naked options selling.