To: Pancho Villa who wrote (3893 ) 3/3/1998 11:43:00 AM From: Oeconomicus Read Replies (4) | Respond to
Re option discussion - Pancho, to be efficient, the option markets require various participants - hedgers, speculators and arbitrageurs. The whole point is to efficiently transfer risk and all three play a part. Damien, if puts have been sytematically overpriced since 1987, I'd say it's the arbs who are missing from the equation. Hedgers and speculators buying puts are anticipating the same thing, one in fear and the other in hope. Speculators and hedgers writing puts seem to be a rarity. The former, being bulls, would be more likely to buy stocks or calls while the latter, short sellers, are a relative rarity anyway any many of them probably don't hedge with puts. Without arbs, it seems to me that demand would always exceed supply, pushing prices higher.
