1/x When I had my vol market making firm, the best trades were always to trade with the smart directional players. You almost always wanted to avoid the retail directional flow. This may seem counterintuitive. Why would you want to trade against the smart directional players?
2/xWhen a good directional player buys deltas, as a MM, you sell them their soft deltas & hedge w/the underlying.Therefore, Generally, your exposure wins when they do.& when they come to take a profit & you have the added benefit of flow pushing the trade in your favor as well.
3/xhistorically w/retail the opposite is true on 2 fronts. Not only are they generally directionally wrong, forcing you into poor positioning with the underlying, but they don’t sell at a loss. They just keep repeating the same losing trade at worse & worse levels....
4/x That’s what’s happening now.Dealers’ve taken the other side of massive retail directional flow in w/near term tech calls.The flow‘s been wrong & continues to BTD.Dealers are stuck short these calls & long stock. Everyone‘s losing. It‘s a big reason tech‘ll continue to be soft
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