What Are the Primary Risks Faced by Market Makers in the Options Market?

Market makers in the options market face several primary risks. The most significant is 'adverse selection,' where they unknowingly trade with someone who has superior information.

Another major risk is 'inventory risk,' which is the risk of holding a position in an option that loses value due to changes in the underlying asset's price or volatility. They also face 'delta risk,' which is the risk associated with the change in the option's price relative to the underlying asset.

To manage these risks, market makers must constantly adjust their positions and use sophisticated hedging strategies.