> whoever is on the other side of the contract is predicting the opposite of whatever you're thinking.
If you are a retail options trader, the person on the other side is a professional market maker who doesn't have a "prediction" the way you'd think about it. He made his money at the moment you did the trade, because you traded at a disadvantage relative to the fair value of the product.
> And, to run an option portfolio, professional options traders run risk management software like Blackrock Aladdin and Goldman Sachs SecDB. These cost a LOT of money (close to 6 digits a year)
No, options desks run (usually proprietary) models whose job it is to price options and strategies along the curve in a self-consistent way (i.e. via no-arbitrage arguments) relative to some more liquid instrument like futures. OR on a bank exotics desk, they run custom models that try to price exotic products from first principles (monte-carlo simulations of cash flows, basically.)
> (close to 6 digits a year)
Way more expensive than this, the quants and developers who build these proprietary models are paid a lot of money.
> Sure, you could get lucky once in a while but in the long run, not knowing the odds is going to hurt you and you are likely to lose all your money.
This is both accurate and not, it depends what you are doing. I believe sophisticated retail traders can find mispricings, especially in less liquid products. If you are not looking at the vols and building curves, (or you don't know what that means), this is not you.