Market Maker

What Is a Market Maker?

A market maker is a financial firm or designated individual that continuously provides two-sided markets—both a bid (what they’ll pay to buy) and an ask (what they’ll accept to sell)—for options contracts across exchanges. Market makers are obligated to maintain these quotes, ensuring traders can enter and exit positions at any time rather than waiting for a natural counterparty.

The business model: capturing the bid-ask spread by buying at the bid and selling at the ask. In liquid options markets, this spread may be only pennies per contract; in illiquid markets, it can be significantly wider. Market makers manage accumulated risk from client order flow by hedging delta, gamma, vega, and theta exposures dynamically throughout the trading day.

See how traders monitor market maker positioning on our How It Works page.

Why It Matters for Options Traders

Market makers are the counterparty behind most options trades made by retail and institutional traders. When you buy a call option, a market maker is typically selling it to you. Understanding how they think about risk management illuminates much about how options are priced and where large hedging flows originate.

Market makers are typically short gamma and long theta as a result of selling options to clients: they collect premium (theta income) while continuously delta-hedging to offset the directional risk they’ve absorbed. The delta hedging required to manage their gamma exposure generates significant volume in the underlying stock and futures markets — this hedging flow is a major driver of short-term price action and is the mechanism behind concepts like gamma exposure (GEX).

When unusually large options flow hits the market, market makers must rapidly adjust their hedging positions. A large sweep of call options pushes a market maker short more calls, increasing their short gamma in that strike. To hedge, they buy the underlying stock — which can amplify the move that triggered the flow in the first place. This feedback loop between options positioning and underlying price action is one of the reasons monitoring flow can provide trading signals.

Key Facts About Market Makers

• Function: Provide continuous two-sided liquidity in options markets; obligated to quote bids and asks
• Revenue: Capture the bid-ask spread; require volume and tight hedging to generate consistent profits
• Risk management: Delta-neutral at all times through continuous hedging of underlying stock/futures
• Short gamma: Typically net short gamma from selling options to clients; must buy the underlying when it rises, sell when it falls
• Hedging impact: Market maker delta hedging is a primary driver of correlated moves between options and underlying prices
• Key firms: Major market makers include Citadel Securities, Susquehanna International Group (SIG), Virtu Financial, and Optiver