Options Market Making Expected Value Interview
Options market making expected value interview guide connecting option payoffs, fair value, spread, volatility uncertainty, and hedge caveats.
Candidates facing options-flavored market-making prompts.
Option payoffs are state-dependent
An option-style market-making prompt starts with payoff by state. Value depends on where the underlying can finish and what the option pays in each state.
Fair value before spread
Estimate the expected payoff or simplified fair value first, then choose a bid-ask spread around it based on uncertainty and risk.
Concrete example
If a toy call pays 10 with probability 30 percent and 0 otherwise, the simplified expected payoff is 3 before costs, discounting, or hedging details.
Volatility uncertainty widens quotes
For option-like payoffs, uncertainty about the distribution can matter more than uncertainty about the current midpoint alone.
Mention hedge caveats
If the prompt asks about hedging, separate the option fair value from the risk of carrying or hedging the position after a trade.
Common mistakes
Candidates often jump to options formulas. In interview games, a clear payoff table and fair-value estimate usually comes first.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.