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stands out because it is written from the perspective of full-time options traders. |
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Neal: Have options had a big impact on the way people trade? |
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Mike: Well, I believe there are four areas that I would like to review. |
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1. Since options pricing theory is based on principles from thermodynamics, options have brought physicists to the pits. Therefore, it is not based as much on who you know as what you know. |
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2. Options markets have made it safer for futures traders to put on bigger positions. Therefore, the futures business owes much to the options side. As the volume and liquidity have increased, the pits have become more competitive. |
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3. The toughness of a competitive option pit, such as the bond and Euro pits, is equal to the physical strains of the futures pits. The same tactics of turning markets and intimidating brokers work in the options pit. Instead of turning the direction of the futures price, they turn the direction of the straddle price. They can bid up or sell down volatility. |
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4. Just as with futures, Chicago options traders lead the world. They routinely use the full spectrum of trading strategies and have a wide variety of opinions and technology that they employ. The markets are generally tight and efficient. Pit traders hate this since they trade the bid/ask spread, but it is great for the retail public, who get better fills. |
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