AdvancedMultiple choice
You are carrying a large long position with no view on direction. Crossing the spread to flatten costs a known amount now. When is holding and skewing passively the better choice?
- AAlways, because paying the spread is a certain loss
- BWhen the expected inventory risk until you unwind is smaller than the cost of crossing
- CNever; a market maker should be flat at all times regardless of the price of doing so
- DOnly when the position is showing a profit, so that the gain can be locked in
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Inventory: carrying risk, shedding it, and the reservation price
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