What can bar bets, coin flips, and the length of your subway commute teach us about options pricing? In this episode of Excess Returns, Matt Ziegler is joined once again by Kris Abdelmessih to break down complex options theory into intuitive, real-world analogies. From prediction markets to probability distributions, Kris helps us understand how the options market reveals what the stock market often hides—how investors are pricing not just if something happens, but how much it matters when it does. This is options math with a twist, taught like you’re five, but ready for Wall Street.📈 Whether you're an investor trying to size a high-risk, high-reward position, or simply curious about how the market “thinks” about uncertainty, this episode is full of mental models you’ll want to revisit.📌 Topics Covered:Coin flips vs. futures: the two dominant styles of bettingOver/under bets and what they teach us about prediction marketsWhy odds ≠ probabilities—and how to convert between themThe difference between probability and magnitude in financial outcomesBar bets and beer-drinking contests on Wall Street (!?)Using call spreads to isolate probabilities, not potential profitsA visual breakdown of skewed vs. symmetric return distributionsWhy two stocks can have the same price but completely different implicationsHow the options market understood the dot-com bust better than most investorsWhy thinking in bets makes you a better investor and allocator⏱️ Timestamps:00:00 – The stock market vs. the options market01:42 – Over/under bets and their connection to options05:59 – Understanding prediction markets and odds10:00 – Future-style bets: Magnitude vs. probability14:35 – The subway commute example and tail risk19:00 – Why volatility and skew matter in pricing20:38 – Stock A vs. Stock B: Same price, different outcomes24:00 – Visualizing probability distributions28:00 – How call values reflect both vol and probability32:00 – Truncating the tail: turning options into “bar bets”35:00 – Using call spreads to extract implied probabilities37:00 – What investors can learn from this framework39:00 – Options markets during the dot-com bubble40:45 – Where to follow Kris online🎙️ Guest: Kris Abdelmessih🧠 Follow Kris’s work: https://moontower.substack.com

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