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There is a reputation among floor traders that, in my opinion, is reasonably accurate: floor traders are intense. Traders need to be loud and boisterous to be heard in open outcry. Though it is largely unacceptable in many work environments, shouting is a normal means of communication on the trading floor. Yet, I did know a few traders who were as docile as kittens—just not many. Clerks who worked for the few particularly intense traders on the trading floor really needed to be right, not just to avoid making a mistake that could cost their trader money but to prevent the 10 THE MARKET TAKER’S EDGE aftermath that would follow: the public humiliation of being berated in front of the entire pit.
Puts, which are negatively correlated with the underlying asset, have negative deltas. That is to say, when the stock rises, puts lose value; when the stock falls, they gain value. Delta can be thought of as how much the option acts like the underlying asset. Specific to equity options, it can be thought of as the option position’s functionality of an equivalent number of shares of the underlying asset. For example, imagine a 60-delta call. If the call price reacts 60 percent as much as the underlying stock and each option represents 100 shares, the call holder will have a position that profits or loses like 60 shares of that stock.
Market makers, effectively, profit by buying the bid and selling the offer; something that non–market makers cannot do except in rare occasions. Therefore, retail traders must trade by taking a position on each trade, which requires (1) being somewhat good at forecasting and (2) having skill in both crafting and managing trades. Further, the commission structure, slippage, and margin requirements faced by retail traders usually prohibit them from trading the tiny-profit-percontract strategies that a floor trader can trade.