Why Public Option Data Cannot Reveal Dealer Net Positioning

Summary

The response argues that public exchange option volume and call-put ratios cannot reliably establish whether dealers are net buyers or sellers of single-name options. Much options activity occurs through private over-the-counter trades, which are not captured in exchange statistics. Large transactions such as crash protection can therefore be absent from visible data, while reported trades may represent only a small part of actual exposure.

It also points to dealer hedging of exotic products, including autocallables and cliquets, as a source of flows that can affect vanilla option exposures. The answer says dealers generally manage aggregate books across Greeks, so apparent imbalances in a visible data source may be offset by positions elsewhere. It offers no systematic dataset or empirical study, and its claims are qualitative rather than demonstrated with measurements. The practical lesson is to treat conclusions about dealer positioning from public option activity as uncertain, especially when private trades and cross-product hedges are unobserved.

Key ideas

• Exchange option statistics omit much privately negotiated over-the-counter activity.
• Visible call-put ratios cannot reveal the full scale or direction of dealer exposure.
• Hedging exotic derivatives can affect vanilla option flows and complicate interpretation.
• Dealers manage exposures across Greeks, so public activity may not reflect their aggregate book.
• The response provides qualitative cautions rather than systematic data or empirical evidence.

Tags

# Are option dealers usually net sellers or buyers of single name stock options?


# Are option dealers usually net sellers or buyers of single name stock options?












If you know of any systematic studies/data on this, please let me know.

## Answer by demully (score 1)

https://quant.stackexchange.com/a/60939

Short answer, there are no studies on this. And any that claim to do this should not be trusted, because they can be negatively helpful ;-(

The majority of option business is not conducted over any exchange, but OTC. It's a private transaction between the bank and the client. For every call or put you see in the "call-put ratio" publicised in much of the market narrative, these are both tips of icebergs. There could be 2 or 3 calls for every reported call; and the same for every put. A very simple example... Warren Buffet talks about the huge "crash puts" that Berkshire sold after 2008. These were never anywhere in any exchange numbers.

And this is before you encounter the tidal waves of options exposure that banks can generate hedging their "exotics" exposures. Including but not limited to the popularity of autocallable structures in Asia, and that of cliquet structures in Europe. These create hedging problems that can do weird things to vanilla options exposures, that are frequent but not really representative of any "normal" options-related exposure.

The bottom line is that no bank ever wants an option book that is out-of-balance on any of its Greeks. Whenever this might appear out of balance from a visible source, this is probably just a sexy "flash of ankle" of exposures that cannot be seen elsewhere.

Sorry to be the bearer of bad tidings here.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.