Historical example: https://en.wikipedia.org/wiki/Martingale_(betting_system) https://en.wikipedia.org/wiki/Martingale_(betting_system) FYI, bonds are the one

Historical example: https://en.wikipedia.org/wiki/Martingale_(betting_system) https://en.wikipedia.org/wiki/Martingale_(betting_system) FYI, bonds are the one of most common examples of such a asymmetric bet. If you buy a nice, safe, investment-grade bond that pays you ~2% more than Treasuries, it's because the market prices in a 2% chance every year that the company goes bankrupt. So in return for 2% excess yield, you get a 2% chance to lose your entire principal. This is a lot like selling a call option -- if you get paid $2 on a $100 stock for selling a call, but if it goes badly against you, it's very possible to lose $100. In fact, you can view 'buying a bond' as essentially buying the assets of a company, and then selling back a call option to the equity holder [1]. The difference is that people at least generally understand that with a bond, your entire principal is at stake, and bonds are hard to lever up compared to selling a call -- but the actual economic risk profile is quite similar. [1] https://books.google.com/books?id=0TTiiI6CGj4C&pg=PA25&lpg=PA25&dq=equity+debt+call+option+firm&source=bl&ots=27dtkQHoI7&sig=1qk_pyhRmmflX1Jv_BWksy_ZsDM&hl=en&sa=X&ved=0ahUKEwj_tMCr27fPAhVI3WMKHQNkC6w4ChDoAQhMMAc#v=onepage&q=equity%20debt%20call%20option%20firm&f=false https://books.google.com/books?id=0TTiiI6CGj4C&pg=PA25&lpg=P...