Stock options and other derivatives essentially play off two things: risk and premium. If the premium is much higher than what you think the actual risk is, the

Stock options and other derivatives essentially play off two things: risk and premium. If the premium is much higher than what you think the actual risk is, then you need to sell it; vice versa for a higher risk. I understand where the OP is coming from, although you have to have a little background knowledge in the area. He points out that sometimes you will have events in which you mispriced the risk-- in other words, the theoretical premium you received was not worth the risk. A much more interesting discussion would be how you would quantify this risk and decide when and where sloppy code will work.