do you know if there is any methodology on how to define spreads when fx option market maker is trying to quote for exaple various fx forward strip strategies?
From bbg ovml or software which we are trying to tailor to quote our clients automatically, i noticed that whenever client is for example buying vanilla puts and selling calls, on one leg vol is automatically set to MID so client is buying put at offer and selling call at mid.
What i have a problem with are the situations where if i want to quote syntetic forward to client via two options, with atmf strike it should be basically near 0cost but as the logic of "sided+MID" legs is in place, calculation within this softwares gives the client unnecessary wider spread becase even when the opt strategy is vega neutral and is basically forward strip, he is still paying vol spread for one of the legs. Is there any rule how this issue is usually handled within option platforms? Should there by some kind of additional calculation for option strategies which takes into account how much vega from the total vega of the strategy is netted therefore bid-ask spread is then applied like MID+30% or 60% of the sided leg according to how much vega was neutralised within buying and selling? So some setup between
MID+100% sided and MID+MID so both options would be quoted with mid volatility?
I have a feeling that i dont understand it good enough and maybe i am missing some crucial basic info about this topic.
