How Does the Concept of ‘Implied Volatility’ Affect a Market Maker’s Strategy in Options?

Implied volatility is a crucial factor in a market maker's strategy for options. It represents the market's expectation of future price swings of the underlying asset and is a key component in pricing options.

Market makers will adjust their bid and ask prices based on their own assessment of implied volatility. If they believe implied volatility is too high, they will be more willing to sell options, and if they believe it is too low, they will be more inclined to buy them.

Their goal is to profit from the difference between their own volatility forecast and the market's implied volatility, while continuously hedging their positions.