Market maker quoting, inventory management, hedging, and trading obligations.
This chapter explains what market makers actually do once a listed options market is open. The exam angle is functional: market makers are not ordinary directional traders. Their role is to support trading quality by posting quotes, facilitating executions, and managing the inventory risk that comes from standing ready to trade with the rest of the market.
Students should be able to separate market-making obligations from the risk-control tools used to stay within those obligations. The important question is not whether a market maker has risk, but how that risk is controlled through spreads, position limits, hedging, inventory adjustments, and disciplined quote management.
Exam Focus
know the core obligations attached to a market-making role
understand how market makers reduce or offset unwanted exposure
distinguish customer facilitation from speculative inventory taking
Official Topics
Obligations of Market Makers
How Market Makers Reduce or Eliminate Their Exposure