medium · Market Microstructure hft
Options market makers are net short gamma on a stock. If the stock price begins to fall rapidly, what is the effect of their delta hedging activity?
- They must buy stock, which stabilizes the price.
- They increase their bid prices sharply to attract more buyers.
- They must sell the stock, amplifying the price decline.
- They take no hedging action at all until the option contract expires.
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