{"id":19857,"date":"2022-06-30T07:30:59","date_gmt":"2022-06-30T11:30:59","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=19857"},"modified":"2022-06-30T07:30:59","modified_gmt":"2022-06-30T11:30:59","slug":"bunch-of-stinking-market-makers","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/bunch-of-stinking-market-makers\/","title":{"rendered":"Bunch of Stinking Market Makers"},"content":{"rendered":"

Today, let’s look into the mailbag for a question I frequently get asked…<\/p>\n

\n

Those stinking market makers, I tell ya! I can’t count how many times I’ve attempted to make a trade immediately following one of your recommendations to find that either the stock price and\/or option price immediately moves out of the buy range.<\/p>\n

Could you take a minute one of these days to explain how these market makers operate? I would love to hear your thoughts on this.<\/p>\n

– Ryan<\/strong><\/p>\n<\/blockquote>\n

That’s a terrific question, Ryan.<\/p>\n

While option market makers do have some modest influence on stock and option activity in the very short term, they’re neither as powerful nor as evil as you might think.<\/p>\n

Most option market makers tend to trade “delta neutral.” That means they’re not looking to profit on a stock’s direction.<\/p>\n

Instead, they look to profit on the time decay of the options.<\/p>\n

So most of the time, the market makers have no interest in moving prices in one direction or another.<\/p>\n

It might help to understand what happens when a rush of option orders hits the market…<\/p>\n\n\n\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The market makers must take the other side of your trade.<\/p>\n

So, if you’re trying to buy call options, then the market makers are selling them to you.<\/p>\n

If that was all there was to it, then you’d make money as the stock goes up and the market maker would lose money.<\/p>\n

But remember, market makers don’t trade for direction. They don’t want the exposure to losses if the stock goes up.<\/p>\n

So, they’ll take another trade to neutralize their short call position. Most of the time, that means they’ll buy the underlying stock.<\/p>\n

Now, imagine what happens when buy orders for thousands of call options hit the market all at once. Market makers have to meet the demand for those orders.<\/p>\n

Then they must immediately turn around and buy the stock.<\/p>\n

The option price moves up simply as a function of supply and demand (everybody rushing in to buy all at once).<\/p>\n

And the stock moves up because the market makers are rushing to buy in order to neutralize their positions.<\/p>\n

If this occurs solely because of a newsletter recommendation, then the action is temporary.<\/p>\n

Option and stock prices will almost always come back to pre-recommendation levels within a few hours.<\/p>\n

That’s why I always tell folks not to chase option prices…<\/p>\n

You’ll almost always get a chance to get into a recommended trade once the initial rush to buy fades away.<\/p>\n

Best regards and good trading,<\/p>\n\n\n
\"signature\"<\/td>\n<\/tr>\n<\/table>\n

Jeff Clark<\/p>\n

<\/p>\n

Reader Mailbag<\/strong><\/h2>\n

Do you normally wait until after the initial rush to get in on a trade? Or do you try to get in right away?<\/p>\n

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

That\u2019s why I always tell folks not to chase option prices\u2026<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[7],"newsletter-type":[],"ticker":[],"class_list":["post-19857","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-jeff-clark"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19857","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=19857"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19857\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=19857"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=19857"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=19857"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=19857"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=19857"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=19857"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=19857"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}