this post was submitted on 08 Jun 2024
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With options trading, a lot of stock movement is reflective of speculation rather than true value.
Stock movement is always speculative with or without options. The difference that derivatives makes is the ability to price in speculative value at some point in the future as well. The price of a share is reflective of what traders think a company is worth today; but an option is a reflection of what traders think the shares will be worth at some point in the future, which people can then look at and use to re-adjust their estimation of what they think the underlying share price is worth today. It's a recursive feedback loop that (theoretically) results in share prices closer approximating a true value. A sort of predictive smoothing function.