What do the returns of your pnl/your firms pnl look like? I've heard someone say that the option MM part of their firm is profitable nearly everyday but I find that hard to believe. I've been in equity prop trading for a while now and the good traders are up nearly every month and do better when the market is down.

I have no idea, just wondering if you guys are just "beating the market" or printing with like a 5 sharpe

That's true, but there's a lot of players out there (such as myself) who work hard to identify and take all the value in those spots.

You need to either look for spots that are so minimally profitable that people making good US wages won't bother with or places where your fee structure differs from other smart players. I'd expect you can make 40k/year, but its hardly going to be easy.

Sorry can't really comment on that

What kind of liquidity do you look for in equities? The big heavy volume stuff has literally no edge (1 cent between bid/ask) and the real thin stuff is real wide but real difficult to lay off with other options. I am guessing there is a sweet spot out there with a wide enough spread and decent enough liquidity.

For a few years I managed an equity options portfolio that often traded the thinner market equities. This was not market making but speculative directional trading. This was in the earlier days of electronic trading (early 2000's) and it was always funny to watch the bots match my markets. Say I wanted to buy some calls and the market was something like .70 bid at .90 offer and I came in with a .75 bid and all of the bots would shift up to .75 bid with me. Always made me chuckle.

Conceptually it's pretty easy to see how they might be profitable nearly every day collecting wide options spreads and using sophisticated dynamic hedging. But there's a good chance an options market maker that's profitable almost every day will also get absolutely smoked on the occasional bad day.

how much of a multiple of your poker hourly are you making now?

There is definitely a sweet spot, although you can make money trading most stocks, the ones that make the most are going to be somewhere in the middle. Usually they will also be the highest vol/riskiest stocks. The really tight stuff you lose to fees even collecting the spread, so you really can only trade those directionally. Recently the best stocks have been the weed ones, so take a look at those markets to get an idea. Trading really high volume so there's a real market and real information flowing, but with lots of dumb money and lots of opportunity to get into good positions.

If I'm bidding .7 for something I think is worth .85 I would definitely move up to join you at .75! There's just not much incentive to improve markets these days because a lot of trading is inside the quotes. So I'd rather make the extra nickel when someone clueless comes, and I can still easily trade if an offer comes in at .75

No clue, but I was making a pretty ridiculous hourly in poker. Especially at the end playing mostly 25/50 and big 8-game sessions vs isildur and co. Also no tax (yay Canada). My problem at the time was a lack of work ethic and self confidence. I ended up playing an absolutely embarrassing volume. I'd be playing against azn-ra, skier crews etc and only doing ok, and therefore thinking that I was clearly not good enough, not studying enough etc. If I had a stronger support system in poker maybe I could have realized that given I was playing against 'bots' and they were pretty loathe to give me any action I should take it as a signal to play harder and longer.

Meanwhile the markets are only open 6.5 hours a day so I'm not missing a minute, and have gotten over my work ethic/confidence issues. And we're pretty damn good at what we do here. So overall its substantially more financially rewarding. I think its probably the optimal transition for successful poker players, and I'm pretty happy I ended up finding it.

Do you really think that trading requires less work ethic than poker and that you'd be making less profit if you found a good support network within poker in time and continued grinding it instead of spending years to learn a trading strategy for the options market, where your profit is capped by the relatively low liquidity?

You could have become a pretty good $100-500 spin reg and eventually a successful staker*, with less profit but much less stress (due to the weaker competition with a relatively smaller share of bots and crushers volume-wise, and due to the precision of the chip EV stat that has no counterpart in finance**) and no taxes as you've said.

* I think staking at a large scale requires less sociability than being in pretty any corporation, partly because you can outsource most of the non-coaching communication with the students to a team of accountants, marketologists, psychologists, etc. It does require a large bankroll, but you had it already.

** I mean, there's no stat that would confirm or disprove at an 80% confidence level within 3 months that one is a longterm profitable trader, is there? Even if your firm has a precise Bayesian method that determines which of the traders are the most profitable, there's no obstacle to the adoption of such techniques by spin and HU stables, just the stables that haven't done so have been too lazy to do so because the cringeworthily crude frequentist estimation of the ROI from the chip EV does a decent job already, in particular, they've been too lazy to hire strong data analysts. MTT investors seem particularly guilty of such laziness: MTT data are structured so poorly that they're asking for a full-time analyst.

Oops, 'eventually a successful staker' was awful wording, I'm sorry. Apparently, you were one for years, just it's still puzzling me why you've left that industry.

It might have been that you found it difficult to adjust to the shrinking edges in poker and the huge counterparty risk of staking and would have had to improve your backing game a lot to continue getting a reliable profit... but another reason that I failed to recognize is that you likely have non-monetary reasons for living in the US and having a regular job. The need to be close to the family members was the reason why Collin Moshman became a crypto investor, for example.

Of course, you can't be blamed for maximizing your life EV, just I shouldn't have used your thread as a source of guidance on the longterm $EV of options trading, especially for someone like me who, unlike most of the readers, is facing tough visa barriers.

I never said trading requires less work ethic. It's not a problem for me now because I have good work ethic.

Yes I'd absolutely be making less money in poker. It's pretty silly to say that options are less liquid than poker.

I think you're overestimating how much free money staking is. More importantly, every successful staker I've known has spent ridiculous time and effort on building relationships within the stable. The only person running a large stable who didn't - ended up losing every penny of equity when the stable blew up in his face.

You're clearly pretty quantitative which is great. You'll probably see a lot of benefit from working on the non-quantitative side of things. Look at the $ earned from learning how to interact/communicate/cooperate conditional on already having strong quant skills.

I'm not American, here on a visa. I also don't think I've said anything about how much money I'm making, maybe you are trying to read too much into my post. I'm still pretty fresh in the industry and do quite well. The upside in options is way way higher than in poker.

Why I quit?
Healthier for my relationships
Healthier for myself
Poker was dying
Better for longterm bankroll

Poker is great for people in low income countries with low opportunity, and decent smarts. It's also ok for people in first world countries with particular intelligence, and an active desire for a very specific lifestyle.

The 40k/year you brought up earlier would not even be enough for a roof over my head in SF

Thanks for all the in-depth answers and explanations! This thread was really interesting and fun to read through.

A couple of questions:

1. For bigger sized markets, do your brokers give you color on who's the entity asking? Let's say they hit/lift you for significant size immediately, would there ever be a situation where you wouldn't start hedging the bulk of that position as fast as you can? I would love to hear your typical thought process/progression is like for these sorts of situations.

2. How's the lifestyle / work-life balance? Also, are most of the people in their 20s/30s, or does everyone tend to stay in trading for many decades?

Thanks for your time!

I trade almost entirely on the screen, I can watch and join the brokers market but I don't know a ton about it.

Ideally I prefer not to hedge at all! Hedging by definition costs money, so unless I'm forced to reduce my risk, I want to have more trading opportunities, or I think I know something about where prices are going there is no point in hedging.

In reality the above often apply. For example if someone buys a ton of calls (I sold) I know that other market makers are about to buy stock. That means the stock is about to rise and the last market maker to get there is going to be forced to buy the stock at terrible prices, maybe even making his trade a net loss.

Work-life balance is easily the best out of all the finance jobs. I'm out of the office by 2-3pm at the latest, work doesn't follow me home, no weekends, unlimited pto and nobody ever gets emotional. It's such a gap between the poor shmucks I know in I banking, definitely chose the optimal finance career path.

Of course when I am working I need to be functioning at 100% at all times, not trying to imply it is anything close to easy.

I think similar to poker, it used to be all young guys who run on intuition and aggression and burn out quick, but its matured and now you can only make it/survive by being deliberate and knowledgable. So the average age was very young 5-10 years ago but its creeping up and I expect it to continue doing so.

Awesome stuff. Thank you for the responses! Its really cool learning about this industry and hearing what it's like. Looking forward to see you continue to crush it out there!

How much of a computer programmer do you need to be? When my firm shut down 4 years ago I sniffed around a couple of option market making opportunities but they all seemed very adamant about having programming experience and skills.

I happily just semi-retired trading on my own dime but was curious as to how much programming is really involved? I worked with some programmers automating a few systems at my old firm and I never met a good trader who could program or a good programmer who could trade.

We have a range of guys, some don't know any languages and some are absolute whizzes. You're right about trading vs programming, turns out that when you're at the top end of the competition its hard to be a master in 2 fields.

I can hack some analysis in python or vba, but my time isn't going to be well spent on hours of programming that someone else can do in 5 minutes. Programming, while a valuable skill and in high demand, doesn't actually make money on its own, and is just another language in the end of the day - it's nothing magical. I think thats going to be a rude awakening for a lot of the younger generation that is expecting to make it big with their cs degrees, there's a decent chance the industry will be oversaturated, especially if the bull run in silicon valley ever ends.

Cool thread I've enjoyed reading the Q&As.
Great to hear you've made such a solid transition after poker.

Definitely agree here. Playing took it's toll on me in a # of ways. Seems you have a nice well rounded lifestyle these days

For the guys wondering about bots, see TLRY. The chances of a bot going broke trying to provide liquidity there must be sky high.

Thanks! Do you plan on starting a new career at any point, or just living the retired life with climbing and occasionally poker when you get bored?

Impressive. I haven't heard of a flesh and blood player beat an electronic eye to a put-call arb (or calendar arb, or butterfly arb) since like 2001. Are you sure you're not a bot??

Having not looked for years--I wonder how many are still out there trying to price all the correlations--within and between names--by hand. Or who don't even think to try. And how long or short they last these days. Well there's always room to free-ride the NBBO 90% of the time--and jump out to add "value" now and then.

Really I don't mean to pick on you. The idea just amazes me that anyone would be trying to market make equity option bid-asks by hand in this day and age. I hope the best for you (as a former one who moved into other option products).

For the sake of a question: in a vol explosion going into an event, like earnings or a suit--are you a buyer or a seller of vol, and why?

It's really not uncommon. There's plenty of arb orders sit-in in the market at any given time. I probably wouldn't bother doing that $50 trade at this point in my career. Of course you're not likely to find $1000+ (although it does happen). There's also always execution risk.

I'm not sure if I've misrepresented myself. I'm not trading 'by hand'. I use computers. Every major options market maker is doing the same thing. Not aware of any firms that are fully automated and provide substantial liquidity.

There's no guarantee that free-riding the NBBO and balancing inventory will make you money. Look at all the firms that shut down and/or struggled. It is somewhat surprising to us millennials coming from poker but traders are still needed.

Not sure how to answer your question, I don't think you can systematically take the same vol view into an event. Vol tends to be a slightly expensive historically, but compensated by lower risk. However if you're short vol and lose, that at least usually means there will be a lot of trading the following day. Each event is its own special snowflake.

Cool thread, I worked at a decent sized option mm firm that has since shut down (was designated mm for an index option) felt like my edge was drying up and I got out 2015ish. Glad to see there are still people finding success

I'm very interested in options but I'm concerned that the retail market hasn't been giving me the best prices.

1. What is the least expensive place a retail trader can trade options?

2. You mentioned that a lot of traders buy stock in companies in which they have sold calls, why would they buy shares of stock in a company that they believe is a bad investment?

3. How often are options you sell exercised by buyers and how do you control risk for those situations?

4. Would it be possible for me to get hired by a firm and work from home? I've been looking into prop trading and my thinking is that the risk to the firm seems controllable because I wouldn't be able to withdraw/steal money if I were trading remotely so the only risk would be what they normally face like bad trades.

I'm not OP but can give you some quick answers in the meantime
Hope that helps I've been out of the business for awhile so sorry if its a bit jumbled