When you click the “Buy to Open” button on your option trading platform, from whom are you buying? And does it matter? Well yes, it does matter. It can affect the price you pay for the option, to the degree that it might make the difference between a winning trade and a losing one.
The options market is made up of multiple exchanges. Each exchange hosts many options “market makers.” The market makers are broker/dealers, whose job is to buy options wholesale and sell them at retail. These dealers are always present in the market.
The market makers’ computer systems make sure that they have a bid price and an offered price in the market at all times for all the options they deal in. This is true whether any trades have taken place in each option or not.
Their presence explains why the option chain for each stock is fully populated. All the market makers are constantly transmitting their bid and ask prices to their exchanges.
The exchanges co-operate in a committee called the Option...
