Market Making (MM)🧵 What is it?
Investopedia says this: “To make a market means to be willing to trade a security against a counterparty by producing a firm bid to buy & offer to sell” Is MM that simple to just place a buy_low & sell_high limit order? Well yes & no Yes, because all you have to do is put in 2 limit orders & keep modifying them the entire day MM provides liquidity to market takers Simply, MM is Limit Orders & Market Taking is Market Orders Distance of limit orders from "fair price" is the premium for immediacy of trx

Forward Volatility -🧵
As the name suggests, forward volatility is the implied vol between any 2 days in the future.If implied vols for any 2 dates in the future exists, then we can find the forward implied vol between them.Forward implied vol is shortened to forward vol or fvol. How is forward volatility calculated?
Volatility is a tricky metric (not linearly additive over time) so we deal with its simpler and younger sibling: “Variance”. As you can expect from younger siblings:
Variance = Volatility^2 … (when both are annualised)

Interpreting Option Skew:🧵
Let's first understand how volatility is measured using standard deviation (stdev).A stdev is a measure of how dispersed the data is in relation to the mean.Low stdev means data is clustered around the mean, and high stdev means data is more spread out What causes data-points to be dispersed or tightly clustered?
VOLATILITY, ENERGY, ENTROPY etc.
For Stocks, it's Volatility.
If volatility of a random variable is high, it will cause high standard deviation in readings.
This is a stock with average standard deviation of 50%

What pre-tax returns, ITC stockholders of each holding timeframe are making (ex-dividend) - A thread 🧵
1. 15 yr holding period (12.8%)

#ITC 2. 10 yr holding period (6.9%)

Stoploss in short volatility: A Thread 🧵
There's always a debate on how one should estimate a stoploss on short option positions. To understand this, one must first understand what the core bet really is. Then set a SL on this underlying bet. For example, if you bet that (1/8) India will score over 150 runs in 20 overs, then it's a bet on the run-rate holding at or above avg 7.5. Similarly if you bet that Nifty50 index won't go above/below 200 pts from spot in next 7 days, then it's a bet on the volatility of Nifty. So, SL of such a bet should (2/8)