Capturing the spread
A contract's fair value is $50, but you must quote a two-sided market that a counterparty can hit or lift. How do you set your bid/ask, and where does your profit come from?
Show hints (2)+
- Center the quote on fair value.
- Profit is the spread earned against uninformed flow.
Answer
This is an open-ended question — work through it and compare your reasoning.
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Asked at: Optiver, IMC, Flow Traders