Originally Posted by
GambleBotsChafedPenis
maybe monsterj will come back in here and enlighten us on that...
my guess...brokers are selling you premium and then immediately delta hedging their exposure with the underlying...
someone on reddit basically said the broker waits for both legs to be purchased and then presents the sale as something of a synthetic single item to me but id love to get a more informed opinion.
clearly there is more to it than that because the exchange will cancel attempts to close at a price that violates the maximum potential profit as defined by the distance between the strikes minus the up front cost to me.
but yeah id love for a real granular informed explanation. there are 4 parties involved at least; me, broker, exchange, whoever is closing my contracts on each legs and there is a ton of mystery around what role exactly we all play here.
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