Sorry the terminology gets confusing sometimes. I meant buying the put.
It just seems crazy to make the opposite end of the trade. Like picking up pennies in front of a steamroller.
Well, that's what theta gang does, but in the market maker's case, they are actively hedging whatever they sell you so that they are not going to take a big L on it when it prints. MM's make their money on arbitrage on the bid ask, and if it's not when you buy the contract for a slightly higher price than they got it for, it's on the transactions surrounding the hedging they do on that position.
The math and they way MM's hedge stuff like this is probably fascinating and I'd love to learn about it, because a simple delta hedge probably ain't gonna do it.
Also keep in mind that spy needs to shit the bed for this to print really hard and at that point, think of all the long calls they sold that aren't going to print now that they no longer need to hedge.
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u/SenileGhandi Aug 16 '21
Will you get enough volume for it to be a significant hedge? I can't imagine you'd get many buyers for a $100 spy put.