I assume the person on the other side of the trade thinks a reasonable probability distribution for the S&P 500 tail events is roughly what the distribution in fact was for S&P 500 tail events in the last century (with some minor-moderate adjustments for changes to the economy). The current market price for 12k-2028 implies a chance of profit of 1.81%, which is around how often, in Sapphire’s analysis, that the S&P 500 doubled in 4 years, 4.3% (which is the scenario where the 12k-2028 calls would be in the money by expiration).
Less precisely, the other person basically expects that the options they’re selling will most likely go to 0, since similar options have almost always gone to 0 historically. So writing more contracts gets them money in exchange for a slim chance they would need to sell other assets to cover a loss.
I assume the person on the other side of the trade thinks a reasonable probability distribution for the S&P 500 tail events is roughly what the distribution in fact was for S&P 500 tail events in the last century (with some minor-moderate adjustments for changes to the economy). The current market price for 12k-2028 implies a chance of profit of 1.81%, which is around how often, in Sapphire’s analysis, that the S&P 500 doubled in 4 years, 4.3% (which is the scenario where the 12k-2028 calls would be in the money by expiration).
Less precisely, the other person basically expects that the options they’re selling will most likely go to 0, since similar options have almost always gone to 0 historically. So writing more contracts gets them money in exchange for a slim chance they would need to sell other assets to cover a loss.