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Thursday, October 10, 2013

professional option traders

Professionals sell calls and puts. (Retail investors buys them.). These are "High probability" trades, i.e. high chance of profit. Given this zero-sum game, it follows that the option-buyers do low-probability trades. This isn't a risk-neutral world. Retail is risk-averse.

There are real risks that the option could get exercised, so the option sellers always need some protection.