I agree this looks promising and is the reason I bought long-dated SPY calls a few weeks ago (already up by 30%). But I would feel more reassured if I felt I could understand why such an opportunity persists. What is the mental state of the person on the other end of this trade?
I assume the person on the other side of the trade thinks a reasonable probability distribution for the S&P 500 tail events is roughly what the distribution in fact was for S&P 500 tail events in the last century (with some minor-moderate adjustments for changes to the economy). The current market price for 12k-2028 implies a chance of profit of 1.81%, which is around how often, in Sapphire’s analysis, that the S&P 500 doubled in 4 years, 4.3% (which is the scenario where the 12k-2028 calls would be in the money by expiration).
Less precisely, the other person basically expects that the options they’re selling will most likely go to 0, since similar options have almost always gone to 0 historically. So writing more contracts gets them money in exchange for a slim chance they would need to sell other assets to cover a loss.
I’ve seen a lot of finance videos talking about the stock market and macroeconomics/future trends that never once mention AI/AGI. And many who do talk about AI think it’s just a bubble and/or that AI ≅ LLMs/DALL·E; prices seem high for such a person. And as Francois Chollet noted, “LLMs have sucked the oxygen out of the room” which I think could possibly slow down progress toward AGI enough that a traditional Gartner hype cycle plays out, leading to temporarily cooler investment/prices… hope so, fingers crossed.
I agree this looks promising and is the reason I bought long-dated SPY calls a few weeks ago (already up by 30%). But I would feel more reassured if I felt I could understand why such an opportunity persists. What is the mental state of the person on the other end of this trade?
I assume the person on the other side of the trade thinks a reasonable probability distribution for the S&P 500 tail events is roughly what the distribution in fact was for S&P 500 tail events in the last century (with some minor-moderate adjustments for changes to the economy). The current market price for 12k-2028 implies a chance of profit of 1.81%, which is around how often, in Sapphire’s analysis, that the S&P 500 doubled in 4 years, 4.3% (which is the scenario where the 12k-2028 calls would be in the money by expiration).
Less precisely, the other person basically expects that the options they’re selling will most likely go to 0, since similar options have almost always gone to 0 historically. So writing more contracts gets them money in exchange for a slim chance they would need to sell other assets to cover a loss.
I’ve seen a lot of finance videos talking about the stock market and macroeconomics/future trends that never once mention AI/AGI. And many who do talk about AI think it’s just a bubble and/or that AI ≅ LLMs/DALL·E; prices seem high for such a person. And as Francois Chollet noted, “LLMs have sucked the oxygen out of the room” which I think could possibly slow down progress toward AGI enough that a traditional Gartner hype cycle plays out, leading to temporarily cooler investment/prices… hope so, fingers crossed.