Option Market Making

Baird approaches options from the market maker’s chair on physical and early screen markets, emphasising inventory risk, quote width, and the tactical management of a book when customer flow is lumpy. On this shelf it complements Natenberg and academic microstructure texts by naming the psychological and operational realities of making prices when capital and position limits bind.

The reader works through spread strategies, synthetic replication ideas, and risk dialogues framed around gamma and vega management in a voice closer to a senior floor trader’s seminar than a graduate PDE course. Diagrams and tables support explanations pitched at working traders and aspiring specialists rather than at pure theorists.

The mathematics is moderate by modern quant standards: partial differential equations and formal stochastic control are not the spine. Expect arithmetic of spreads, volatility intuition, and heuristic rules that made sense when tick sizes, fee schedules, and latency were radically different from today’s listed and OTC electronification.

Risk managers and educators can use the book to explain why bid–ask exists beyond “spread captures profit”: adverse selection, inventory pressure, and capital charges appear as first-class concepts. That framing still helps junior staff understand dealer behaviour even when the execution layer has migrated to algorithms.

Caveat: publication in 1992 means examples, venues, and technology are historical. The book is catalogued as a classic intuition layer, not a primary reference for modern option market structure, electronic quoting, or retail order-flow debates.