RT Journal Article
SR Electronic
T1 Protecting Market Makers from Scalpers in Option Markets
JF Trading
FD Institutional Investor Journals
SP 65
OP 71
VO 2008
IS 1
A1 Giovanni Petrella
YR 2008
UL http://guides.pm-research.com/content/2008/1/65.abstract
AB Scalpers are traders who establish and liquidate an option position quickly, even for very small gains in relative terms. Scalpers trade very frequently during the day to make intraday profits without holding any hedge position in the underlying market and without carrying inventory overnight. This article shows that: option market makers bear losses when trading with successful scalpers; scalpers may design successful trading strategies exploiting some evidence of intraday short-run return predictability; option market makers may protect from scalping risk by quoting a bid-ask spread that makes after transaction costs profits for scalpers equal to zero; and option market makers in the Italian and Australian covered warrants markets do actually quote a bid-ask spread that protect them from scalpers.