5 stars based on
Buying or selling an option is a process quite similar to buying or selling stock. In fact, it trades pretty much like any other security. You probably already know how exchanges work. But figuring out just how options change hands can be a little confusing. Retail investors are individuals like you who are buying and selling options with their own money for personal profit. Their objective is usually to make a significant percentage gain on their initial investments.
Normally, individual retail investors will be trading on a smaller scale than other players in the game. Institutional traders are professionals trading for large trade options like a market maker list like mutual funds, hedge funds, etc. Oftentimes they will trade options to hedge their positions, but they may also trade options as pure speculation.
Broker-dealers are in the game to facilitate trades. Trade options like a market maker list are firms like Ally Investthat accept orders on behalf of clients and then ensure they are executed in the open market at the best available price. This is done in exchange for commissions on the trade. Market makers are the lb. Thus, market makers provide liquidity in the options marketplace.
In other words, market makers stand ready to take the opposite side of a trade, if and when one trade options like a market maker list the other players wants to buy or sell an option. Market makers provide a firm bid and ask offer price in order to facilitate trading on that option. In theory, market makers earn their profits from the difference between the bid and ask price of options.
In practice, the picture is a little more complex. Trade options like a market maker list for now, the above scenario is all you really need to know.
Exchanges exist to maintain a fair and orderly marketplace and to provide timely dissemination of price information. Any time you place an option order, it is routed to an exchange, where buyers are matched with sellers. When you enter an option order with Ally Invest, we look in the marketplace for the national best bid or offer price for your trade. Your transaction is then matched with the entity providing that bid or offer. Much of the time you will be trading with a market maker.
However, you may instead wind up trading with an institutional trader, a dealer, or another retail client. Ultimately, what this all means is that there will always be a market for any exchange-traded option you would like to buy or sell. You may not always like the market for a given option, but rest assured it will always be there for you to participate in should you choose to do so. Options involve risk and are not suitable for all investors.
For more information, please review the Characteristics and Risks of Standardized Options brochure before you begin trading options. Options investors may lose the entire amount of their investment in a relatively short period of time. Multiple leg options strategies involve additional risksand may result in complex tax treatments. Please consult a tax professional prior to implementing these strategies. Implied volatility represents trade options like a market maker list consensus of the marketplace as to the future level of stock price volatility or the probability of reaching a specific price point.
The Greeks represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract. There is no guarantee that the forecasts of implied volatility or the Greeks will be correct.
Ally Invest provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. System response and access times may vary due to market conditions, system performance, and other factors. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy.
The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results and are not guarantees of future trade options like a market maker list. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns.
The Options Playbook Featuring 40 options strategies for bulls, bears, rookies, all-stars and everyone in between. Retail investors Retail investors are individuals like you who are buying and selling options with their own money for personal profit. Institutional traders Institutional traders are professionals trading for large entities like mutual funds, hedge funds, etc. Broker-dealers Broker-dealers are in the game to facilitate trades.
Market makers Market makers are the lb. Exchanges Exchanges exist to maintain a fair and orderly marketplace and to provide timely dissemination of price information. Where your Option Orders Go. Meet the Greeks What is an Index Option?