Mirror

This one is more technical, but I'm confident we can get through it together without the Dalí face, the i-don't-know-what-is-happening face.

Asymmetry—I will write about it until the cows come home. This time, it's subtle but powerful. In this short excerpt, I want to explore asymmetry through the lens of isomorphism—two things with the same or similar structure but behaving differently in different contexts. Some might draw an analogy to chiral structures. I'm writing about this because it challenges my own assumptions and beliefs about skill transferability—the idea that a skilled person can seamlessly transition to other areas and adapt to new realities. But under certain fringe conditions, these core assumptions fall apart: Fooled by symmetry.

Even the Bhagavad Gita advises us on the difference between the eternal and the temporary—the illusion of similarity: “The unreal has no existence, and the real never ceases to be.” Let that simmer for a bit, a while, or perhaps for eternity.

Insurance and options contracts share structural similarities—both involve paying a premium for protection against an uncertain event. However, the key difference lies in how their pricing influences the probability of payout.

In an insurance contract, the amount someone pays in premiums does not affect the likelihood of the insured event occurring. For example, the price of fire insurance does not alter the probability of wildfires in Los Angeles causing widespread damage. The event remains completely independent of the pricing scheme.

Despite being structurally similar to insurance, options exhibit a key difference: the price of an option can impact the probability of a profitable outcome. For example, heavy buying of upside options can create reflexivity in the market, influencing the movement of underlying assets and, in turn, the likelihood of a profitable outcome.