Insurance is rooted in statistical analysis.
Buying options, unless you literally buy every option that exists, is not even close to similar.
Did I adequately address your strawman?
Buying options, unless you literally buy every option that exists, is not even close to similar.
Did I adequately address your strawman?
Just like you pay health insurance premiums to mitigate against costlier health risks.
You own 1 XYZ at an average price of $200.00. It is trading for $300.00.
You purchase an option to sell 1 XYZ for $300.00, which costs you $10.00, and expires in 3 months.
You just paid $10 to guarantee a minimum profit of $90.00 in 3 months, regardless of whether the price swings down.
There isn’t any morally harmful transaction occurring here, IMO.
It’s actually less risky than owning a stock for 3 months.
Is this transaction a reprehensible one, for you?
To be clear, we’re not trying to say that all options are created equal. Naked options (where you have no position) are in fact straight up gambling, at least insofar as I’ve tried to reasoned about them.
Have you ever priced a derivative? What about the estimation of future/realized risk using implied volatility doesn't seem "rooted in statistical analysis" to you?