chapter 12The Wizard of Oddz: Applying Option Strategies in the “Real World”

Option trading is not unlike other industries that are in the business of “playing the odds.” For example, casinos bring in gaming revenue confident that over time they will collect more that they pay out in winnings. Although comparing the financial markets directly to gambling may not be a popular perspective, they both have obvious similarities. In the same way, insurance companies collect premium in anticipation of the probability of future payouts. Option traders may be able to benefit from the same logic through option selling, thus capitalizing on probabilities as opposed to entering a position hoping to profit on a “long shot.”

It is not a big secret ...

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