Forums  > Trading  > Why is Fully Systematic Options Trading/MM so different?  
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Total Posts: 6
Joined: Jul 2019
Posted: 2020-12-24 07:51
I've heard that it's hard to approach options trading in the same way as you would be trading, say futures/equities.

This seems obvious, even to a complete non-options expert to me, but what surprises me is that even at the HFT/ultra low-latency level, the options MM traders are still manually adjusting trading parameters throughout the day (side note: how does one backtest this?) rather than taking a fully systematic approach.

Would someone be able to explain to me why this is the case ? I understand that adding ideas about IV into your algorithm could only help your market making/taking algos, but why is this not being done quantitatively (as opposed to a discretionary manner)?

I'm a junior quant focusing mostly on mid-freq equities, so I'm not well informed on this subject and I may be making a bunch of incorrect assumptions and would love to be enlightened :)


Total Posts: 1276
Joined: Jun 2005
Posted: 2020-12-24 09:05
I dont know the answer, so just guessing: with options you trade risk premium, not cash. Hence, some additional risks might be not priced in, but you can add them manually. Also, smile-fit might loose stability (e.g. illiquid quotes at beginning/end of session or OTM/ITM). However, if it is stable, I see no reason for manual intervention.

... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c)


Total Posts: 2
Joined: Mar 2018
Posted: 2020-12-25 03:50
Not all shops are semi-systematic(traders adjust IVs manually), there are shops that do completely automated trading. Optiver and Susq are semi systematic, IMC and Citadel do systematic OMM (although they do have semi systematic desks)
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