This is one part of the derivatives market that I’ve never understood – who creates and sells these options, and why?
Creating and selling options, in itself, has always sounded a loser’s business to me.
When it’s selling them to investors more sophisticated, and more informed, than you – it’s just burning pounds to earn pennies from viewers.
Why do then the same set of investors, usually pension funds, keep doing this every few years? Despite half of them getting wiped out by those pensions when the next downturn (or a period of volatility in this case) hits.
Is this a case of agency problem – The fund manager will earn his keep by ensuring steady returns (from option fees), and hope to move on before the crisis hits?