Kinds of market making

[yoneda]

Hi everyone, sorry for a very basic question inspired by reading Sinclair's books. How many instruments one need to combine in order to do a market making strategy? In Volatility Trading Sinclair uses a delta hedged portfolio consisting of call options and short stock. Can I do this in FX or futures markets alone? Can I even do market making for a single tradable instrument?



Slightly unrelated but I have also been thinking what kind of strategy would a market maker with infinite capital do. I would probably quote at every level of the book and keep adding or releasing inventory with price. Have you guys thought of this?

[eeng]

Not a practitioner myself but I assume a typical MM will look for exposure to multiple, possibly uncorrelated instruments in order to get the benefits of diversification. Also possibly she'll try to hedge out any aggregated exposures using other instruments.



The question regarding infinite capital is very atypical of MM since inventory management is a huge issue in MM. I'd say the most profitable strategy would be to corner the market.