## The Myth of Risk-Free Market Making

Market Makers (like Citadel or Wolverine) sit on the other side of every retail trade. When a Reddit forum buys 50,000 Call Options on GameStop hoping the stock goes up, the Market Maker is the one legally obligated to sell them those options. This means the Market Maker is massively short.

### FAQ

**Q: How do Market Makers not go bankrupt when stocks squeeze up 500%?**
A: Delta Neutrality. Market Makers don't actually care if a stock goes up or down. Because when they sell you 50,000 Call options at a 0.35 Delta, their algorithm automatically turns around and buys 1,750,000 actual shares of the stock to perfectly "hedge" the risk. If the stock crashes, the options expire worthless (pure profit), but they lose money on the stock. If the stock rockets, they lose massive money paying out the options, but they make massive money on the stock they bought. They win the mathematical difference (the spread/premium). However, the act of constantly buying and selling the stock 1,000 times a second to maintain that perfect "Neutral" balance incurs a silent friction tax called "Slippage," where High-Frequency Trading algorithms scalp pennies off the Market Makers' massive block orders.