None of this should be attempted at home unless you listened to @darjohn25 with Corey and thought "yea, I could do that"
it's more natural to use vol-informed ideas to structure directional option trades (if you dig thru the vol wiki there's plenty on how to think about this)
Banks and market makers get short say an 80%-60% put spread every year due to the annual Hacienda hedge. If the market drops, vol beta is strong...but what if the market trades below that 80% strike...
Now the hedgers are short an ITM puts and long an OTM put. In other words, they went from being short a PS to being long skew on risk reversal. The inventory causes the call skew to firm, and the vol beta to decline to the downside as dynamic hedgers are no longer stressed lower
The best trading/mm firms aren't just capturing spreads. They use market intel to read the table and make big bets. Obsession was finding real EV knowing they had bankroll to bet big when they found it.
It ties back to a lesson I've mentioned before and makes sense when your bankroll is large
if you make money every day you're leaving money on the table
You don't close trades unless your getting edge to do so.
Like Darrin said on @choffstein pod...if you sell a tail you must collect the whole premium otherwise the times you lose multiples mean you def have neg ev
Building sims instead of backtesting as a way to get more samples. Table stakes to get a fingertip feel especially when you don't get the apprentice experience
(btw, doing this gig w/o being an apprentice sounds impossible so huge props to Darrin)
The idea of pricing out financial products to the penny. Darrin called it "back-office" kinda stuff that retail doesn't do. Corey said he does this too.
This is exactly what you do at a mm/arb shop. Giant spreadsheets pricing fair value for financial products. Not optional work