The Market Maker Move (MMM) indicates the expected magnitude of an upcoming move such as earnings. It can provide some useful info that you can use when trading options.
Understand what the Market Maker Move is and how it can be applied to trading options
Hey, Coach May! On the symbol bar of the thinkorswim® platform from TD Ameritrade, I saw a yellow MMM followed by a +/- number. But it’s not always there. Is this some hocus-pocus magic, or is that how it’s designed?
The three Ms stand for the Market Maker Move (MMM) indicator. It’s not magic, but you can do some cool tricks with it.
Here’s the gist. When the market prices excess volatility into the next options expiration date (typically on a Friday), MMM pops up and shows the expected magnitude of an upcoming move, expressed in dollar terms. So, an MMM of +/-4.50 would mean that, based on implied volatility (IV), the market is expecting a move—up or down—of $4.50 over and above the usual price variability.
Let me unpack that a little more.
In normal markets, IV is lower for the front-month options contract than for deferred months. But when a potentially outsize move—such as an earnings release or company announcement—is expected, you may see that yellow MMM. When there’s no MMM, the options market isn’t pricing in an excess volatility. But during especially volatile times, you might see MMMs for many stocks.
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So how do I use the MMM?
There are different ways to potentially incorporate MMM into your trading strategies. Here are a few:
MMM uses some market dynamics that market makers use to set their bid/ask spreads (hence the name). It’s reverse-engineered math—no secrets there. Don’t expect MMM to give you clairvoyance on how far, or in which direction, a stock will move. But it could be a welcome addition to your bag of cool trading tools.
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