Ask the Coach: Market Maker Magic Move

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. in book: market maker move
5 min read
Photo by Dan Saelinger

Key Takeaways

  • Understand what the Market Maker Move is and how it can be applied to trading options

  • Learn to use the Market Maker Move to set entry and exit points, select strikes for options spreads, and how to apply it during earnings

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.

So how do I use the MMM?

There are different ways to potentially incorporate MMM into your trading strategies. Here are a few:

  1. Setting entry/exit points. Implied volatility is exactly that—volatility implied by the market based on options prices. That makes it an equilibrium spot, at least from a wisdom-of-the-crowd perspective. So, you could add MMM to your list of points to watch—as a possible profit target, stop level, or both.
  2. Strike selection for options spreads. If you plan to trade based on earnings reports, you could consider using the MMM to help structure a trade. What you choose depends on your risk tolerance and trade objectives. As an example, some traders set the strikes of a short strangle one or two MMMs wide. Another tactic is to sell an iron condor with the short legs one MMM around the at-the-money strike and the long legs two MMMs apart. This would put your area of profit within the MMM reading, but if it happens to be a mega-surprise, you hit your max loss in two MMMs.
  3. Long options plays. Pre-earnings, IVs tend to be elevated (which is why the MMM shows up), and that means options can be relatively expensive. But you might find a bargain in a strike price that’s outside the MMM range. Scan the MMMs of your favorite stocks and compare them to the wing strikes in the option chain to see if something strikes your fancy.

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. 


Key Takeaways

  • Understand what the Market Maker Move is and how it can be applied to trading options

  • Learn to use the Market Maker Move to set entry and exit points, select strikes for options spreads, and how to apply it during earnings

Do Not Sell or Share My Personal Information

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

Spreads, Straddles, and other multiple-leg option strategies can entail additional transaction costs, including multiple contract fees, which may impact any potential return. These are advanced option strategies and often involve greater risk, and more complex risk, than basic options trades.


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