Re:Options trading is NOT gambling
by Hedgemaster on Thursday July 22, 2021 @11:53AM
(#27920354)
Very good point.
Since you made a comparison to prediction markets, let's focus on earnings release dates. Earnings release is an event that's known to happen on a certain date in the future, just like some political election (only few companies don't disclose their future earnings dates in advance, Berkshire Hathaway is amongst them).
There are plenty of studies researching option prices and the stock moves post earnings release, this is just one of them: https://www.stern.nyu.edu/sites/default/files/assets/documen...
The conclusion of that particular study is that option prices prior to the earnings release date are helpful for learning about the future stock price volatility.
In prediction markets people bet on a future outcome and then these bets are traded in a market. Turns out that the price that they trade at converge to the perceived (and often the underlying) probabilities of those outcomes. Options market has a similar structure, people bet on the future price of a stock. What I am interested in if there is any study that shows whether the prices on these outcomes track their probabilities.