Here is a statistic that ought to unsettle anyone who thinks of options as bets on a binary outcome: according to the Chicago Board Options Exchange, only around ten per cent of options contracts are ever exercised. The rest are either closed out before expiration or expire worthless. The trader captures or cuts the position’s value without ever touching the underlying asset. No barrels of crude are delivered. No shares change hands. The option has done its work not by reaching its terminal payoff, but by enabling continuous strategic adjustment along the way.

But the deeper question is why. The answer is not preference. It is arithmetic.

The global over-the-counter derivatives market alone carries a notional value of approximately $846 trillion, according to the Bank for International Settlements. Add exchange-traded contracts and total notional approaches one quadrillion dollars — roughly eight times global GDP. The system cannot settle. There is not enough underlying economic reality to absorb the exercise of even a modest fraction of those contracts. Close-out is not a choice; it is a structural necessity imposed by the ratio of commitments to capacity. When your book dwarfs your underlying, you manage positions. You do not exercise them.

This fact has a powerful and largely unrecognised analogue in statecraft. States, like derivatives markets, carry strategic portfolios whose aggregate notional value vastly exceeds their capacity to exercise simultaneously. And no state illustrates this more vividly than Israel.

A small state with a very large book

Consider the scale of Israel’s open positions. Deterrence against Iran’s nuclear programme. Containment of Hezbollah. Suppression of Hamas. West Bank security. The Abraham Accords framework. The American alliance. The still-open normalisation option with Saudi Arabia. Freedom of navigation in the Red Sea. Cyber........

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