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Pinning Is Hedging Feedback Not Market Manipulation
- Villainization of market makers misunderstands that electronic structure reduced many past abuses and that pinning is a hedging feedback, not deliberate manipulation.
- Pinning arises from delta/gamma hedging pressure toward strikes, which hurts market makers who are forced to hedge.
Delta Hedging Frequency Changes Option Perspectives
- The number of delta hedges separates market-maker and buy-side views: makers are path-dependent, buy-siders focus on terminal distribution.
- Frequent hedging makes market makers sensitive to intraday volatility; buy-side dealers hedge infrequently and view payoff by expiry.
Classify Trades As Risk Premia Or Inefficiencies
- Separate trades into risk premia and inefficiencies and treat them differently: size risk-premia cautiously, scale inefficiency bets when conviction is high.
- Use model-driven trades for continuous exposure and situation-driven trades for sporadic, higher edge opportunities like earnings or corporate actions.