Inventory Skew Strategies

Inventory skew strategies refer to the active management of a market maker or liquidity provider's net position in a specific asset. In the context of options trading and cryptocurrency, market makers aim to remain delta-neutral to avoid directional risk.

When retail flow causes a market maker to accumulate an imbalance of long or short positions, they adjust their quoted prices to incentivize counter-flow. By skewing the bid and ask prices, they attract trades that help rebalance their inventory toward a neutral state.

This process is essential for maintaining liquidity in order books while mitigating the risk of holding large, unhedged positions. It balances the desire to capture the bid-ask spread with the need to minimize exposure to price volatility.