overcandeling

Overcandeling is a phenomenon that occurs in the context of financial markets, particularly in the trading of options and other derivatives. It refers to the situation where an options trader or a market maker is forced to deliver or buy a large number of underlying assets at a price that is significantly different from the current market price. This can happen due to a variety of reasons, including large orders, market volatility, or the expiration of options positions.

The term "overcandeling" is derived from the practice of "candeling," which involves the simultaneous purchase and sale of options to create a market-making position. When the market moves against a trader's position, they may be forced to deliver or buy a large number of underlying assets, leading to overcandeling.

Overcandeling can have significant implications for market participants and the overall market. For traders, it can lead to substantial losses if they are unable to deliver or buy the required number of underlying assets at a favorable price. For market makers, it can result in increased risk and potential losses. For the market as a whole, overcandeling can contribute to market volatility and price movements.

To mitigate the risks associated with overcandeling, market participants often use various strategies, such as hedging, adjusting their positions, or using different types of derivatives. Additionally, regulatory bodies may implement rules and guidelines to manage the risks associated with overcandeling and ensure the stability of financial markets.