The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to discuss why money managers use options to buy insurance. I think this is an interesting discussion because like all places in the markets, we see that many money managers and many brokerage firms and portfolio managers use options to buy risk protection, hedge protection or insurance for their portfolio, but the question is – Why do they do this? If they generally know that option buying is a bad idea and generates negative expected returns over the long term, why do they still continue to buy this insurance which is a valid question? To me, I think it comes down to two possible things. The first is simply the fear of losing their job. And I say this with all honesty because I think most money managers or portfolio managers fear being cut by the board or the directors for that portfolio or that company if they find themselves in a situation where they took on too much risk. The idea here is that n