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training_data/curated/text/9efc3cbe7cc2dcef4c70c4b537941397fc5381e244f7931251ed3b622e151109.txt

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+options to me at prices I wanted to buy them—my bid—and buying options
+from me at prices I wanted to sell them—my offer. Upon making an option
+trade, I needed to hedge directional risk immediately. I usually did so by
+offsetting my option trades by taking the opposite delta position in the stock
+—especially on big-delta trades. Through this process of providing liquidity
+to the market, I built up option-centric risk.
+To manage this risk I needed to watch my other greeks. To be sure, trying
+to draw a P&L diagram of this position would be a fruitless endeavor.
+Exhibit 16.8 shows the risk of this trade in its most distilled form.
+EXHIBIT 16.8 Analytics for market-maker position in Ford Motor Co.
+(stock at $15.72).
+Delta +1,075
+Gamma−10,191
+Theta +1,708
+Vega +7,171
+Rho −33,137
+The +1,075 delta shows comparatively small directional risk relative to
+the −10,191 gamma. Much of the daily task of position management would
+be to carefully guard against movement by delta hedging when necessary to
+earn the $1,708 per day theta.
+Much of the negative gamma/positive theta comes from the combined
+1,006 short January 15 calls and puts. (Note that because this position is
+traded delta neutral, the net long or short options at each strike is what
+matters, not whether the options are calls or puts. Remember that in delta-
+neutral trading, a put is a call, and a call is a put.) The positive vega stems
+from the fact that the position is long 1,927 January 2003 20-strike options.
+Although this position has a lot going on, it can be broken down many
+ways. Having long LEAPS options and short front-month options gives this
+position the feel of a time spread. One way to think of where most of the
+gamma risk is coming from is to bear in mind that the 15 strike is
+synthetically short 503 straddles (1,006 options ÷ two). But this position
+overall is not like a straddle. There are more strikes involved—a lot more.
+There is more short gamma to the downside if the price of Ford falls toward
+$12.50. To the upside, the 17.50 strike is long a combined total of 439
+options. Looking at just the 15 and 17.50 strikes, we can see something that