What is the role of financial options in the economy?

Do financial options assist in stabilizing or destabilizing the stock and commodities markets?

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May 2017

Securities including options don't exist for the purpose of stabilizing or destabilizing the financial markets.  Stability is primarily a psychological condition which depends upon investors' confidence of lack thereof, and tends to be overly influenced by recent market behavior.  An eight-year bull market makes investors far too confident about the future; a severe two-year bear market like 2000-2002, 2007-2009, and probably 2017-2019 has the opposite impact.  Experienced investors can use options as an additional tool in their arsenal, just like having a sophisticated chain-saw can be very valuable for an experienced carpenter.  A hack who knows little about the proper use of a saw can end up getting badly hurt by a new chain-saw, just as inexperienced investors can be badly burned by options.  The less you know about something, the less you should be involved with it.

May 2017
May 2017