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#698 - Why Do Options Exist?

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Manage episode 240205148 series 1615906
Content provided by Kirk Du Plessis. All podcast content including episodes, graphics, and podcast descriptions are uploaded and provided directly by Kirk Du Plessis or their podcast platform partner. If you believe someone is using your copyrighted work without your permission, you can follow the process outlined here https://player.fm/legal.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “Why do options exist?” I think this is an important question to ask and one that I think not many people actually truly ask themselves or ask really even about the market. If options contracts exist in the market, then why do they exist? They don’t exist, so that we can just throw money back and forth between each other. They exist for an underlying fundamental purpose. And the reason that option contracts exist is simply for the transfer of risk from one person to another. It’s the same reason why insurance contracts exist because someone is willing to transfer their risk to another party in exchange for some sort of fee or compensation, however you think about it. But that’s really the fundamental reason why option contracts exist.

If someone’s going to buy an option contract, say a put option contract that protects them in case the stock goes down, they are willing to pay money in order to transfer the risk of the stock going lower to another party. And then that option seller (me in this case or somebody who sells options) is willing to accept that risk in exchange for some sort of compensation on the other end. And so, this is why the whole options market exist because some future unknown event is still out there and will always be out there until we can accurately predict the future. But because there will always be a future and it will always be unknowable, then people are willing to transfer risk of some future event happening. This is a really important question. Again, I beg you to ask the question today not only to yourself, but to ask somebody else. Somebody else who you know that trades potentially, ask them. “Why do option contracts exist?” See what their answer is, let us know everywhere at Option Alpha and until next time, happy trading.

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800 episodes

Artwork
iconShare
 

Archived series ("Inactive feed" status)

When? This feed was archived on February 25, 2022 17:08 (2y ago). Last successful fetch was on June 09, 2020 22:38 (4y ago)

Why? Inactive feed status. Our servers were unable to retrieve a valid podcast feed for a sustained period.

What now? You might be able to find a more up-to-date version using the search function. This series will no longer be checked for updates. If you believe this to be in error, please check if the publisher's feed link below is valid and contact support to request the feed be restored or if you have any other concerns about this.

Manage episode 240205148 series 1615906
Content provided by Kirk Du Plessis. All podcast content including episodes, graphics, and podcast descriptions are uploaded and provided directly by Kirk Du Plessis or their podcast platform partner. If you believe someone is using your copyrighted work without your permission, you can follow the process outlined here https://player.fm/legal.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “Why do options exist?” I think this is an important question to ask and one that I think not many people actually truly ask themselves or ask really even about the market. If options contracts exist in the market, then why do they exist? They don’t exist, so that we can just throw money back and forth between each other. They exist for an underlying fundamental purpose. And the reason that option contracts exist is simply for the transfer of risk from one person to another. It’s the same reason why insurance contracts exist because someone is willing to transfer their risk to another party in exchange for some sort of fee or compensation, however you think about it. But that’s really the fundamental reason why option contracts exist.

If someone’s going to buy an option contract, say a put option contract that protects them in case the stock goes down, they are willing to pay money in order to transfer the risk of the stock going lower to another party. And then that option seller (me in this case or somebody who sells options) is willing to accept that risk in exchange for some sort of compensation on the other end. And so, this is why the whole options market exist because some future unknown event is still out there and will always be out there until we can accurately predict the future. But because there will always be a future and it will always be unknowable, then people are willing to transfer risk of some future event happening. This is a really important question. Again, I beg you to ask the question today not only to yourself, but to ask somebody else. Somebody else who you know that trades potentially, ask them. “Why do option contracts exist?” See what their answer is, let us know everywhere at Option Alpha and until next time, happy trading.

  continue reading

800 episodes

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