medium · Market Microstructure mmf-core
An options market maker is 'net short gamma' on a large portfolio of call options they have sold to clients.
If the underlying stock price begins to fall rapidly, what must the market maker do to maintain a delta-neutral hedge, and what is the market impact?
- They must buy the underlying stock, stabilizing the market.
- They must hold their position until expiration to avoid 'pinning' risk.
- They must sell more options to offset the delta change; impact is minimal.
- They must sell the underlying stock, amplifying the price decline.
Sign up free to see the explanation and track your rank →
More Market Microstructure mmf-core practice
- A stock is trading at $100.00. The Level 1 S&P 500 Market-Wi… — What is the status of trad
- If the stock gaps down and opens at $69.50 on Tuesday morning, at what price will the trad
- Using the Lee-Ready algorithm, how should a trade occurring at $50.10 following a $50.00 t
- During the pre-open period of an opening auction, the exchan… — What is the primary purpos
- If a stock enters a 'limit state' and does not recover within 15 seconds, what is the regu
- A retail trader hears a stock tip on a popular social media… — How is this trader classifi
- A corn farmer is worried that prices will drop before the harvest in three months. The far
- What is the clearing price that maximizes volume?