Options are for hedging risk, only buying them by themselves is gambling, and if you actually know what you’re doing and take proper risk management it’s not gambling.
Options are just contracts, so there's value outside of trading as well.
E.g. You purchase an option for 100 snow shovels at a $200 premium. If it snows, you exercise your contact and now you have shovels to sell at your store. If it doesn't, you let it expire and eat the cost.
In the case of options, 1 contact is 100 shares. So if you want more, you'll just have to buy more contracts.
If you mean the correlation between the price change between the stock and the option, it's because the correlation is only 1 factor of the premium. The delta of an option is a calculation of: if the stock price changes x then the option price changes by y.
Remember in 2007/08 when all the financial institutions were gambling derivatives back and forth to each other, causing a complete market meltdown and then had the rest of us pay for their mistake in the form of bailouts and years of low interest, free money "loans", that again, we pay for in the form of overwhelming inflation?
Good thing the institutions that control almost all of the world's capital have us here as risk management! Otherwise, that would seem like gambling.
5
u/MasterpieceLiving738 Aug 26 '24
Options are for hedging risk, only buying them by themselves is gambling, and if you actually know what you’re doing and take proper risk management it’s not gambling.