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It was heavily traded but there was an equal amount written/sold as bought. Were the writers/sellers lacking of foresight? Were buyers prescient? Was everyone
by gretch 7y ago
It was heavily traded but there was an equal amount written/sold as bought.
Were the writers/sellers lacking of foresight? Were buyers prescient? Was everyone gambling?
- tempsy 7y agoI’m not sure what your point is. Sellers obviously think the credit they earn is worth the risk. Buyers think the price they pay is worth it too. It’s just a two-sided marketplace like many other things. Options writers can and should hedge losses by not writing naked calls (highly risky in situations exactly like this) and instead buy a higher strike option which caps losses e.g. a vertical spread.
- gretch 7y agoYou said the option/strike in question was not a dumb lotto bet and you submitted the volume of trading as your supporting evidence. But the state lottery is literally a dumb lotto bet with super high volume. So I don’t see how this wasn’t some set of lucky gamblers. If ER went another way, there’d be some other group making lots of money. Everyone speculating about the future (which is fine depending on the financial circumstances of involved individuals)
- kccqzy 7y agoOptions can be used both for hedging and speculation. You seem to only appreciate the latter. Suppose I own AMZN already at a lower cost basis and believe the $2000 strike is approximately the maximum, say for example I believe the stock will drop after a short rally. Then I'd write a call; if the stock doesn't reach $2000, I earn the premium, even when the earnings are bad and the stock tanks; if the stock does reach $2000, I earn the premium and realize the gains on the stock, with only a bit of a FOMO. That's one of the most basic option strategies known as a covered call.