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Market Making/●●●●

When inventory says sell but your signal says hold

You're long 3,0003{,}000 shares of a stock the market values at 50.0050.00. Two forces pull your quotes in opposite directions:

  • Inventory: being long argues for skewing down to sell; your inventory penalty is worth about 3-3 cents on your reservation price.
  • Signal: you have a mild bullish read, a correlated indicator suggests fair value is drifting up by about +2+2 cents.

Where do you center your quotes, and how do you think about the tension?

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