In a perfect market, the market maker who sells you that option offsets it with correlated assets in the other direction, eg by buying or selling stock that is sensitive to the election.
Large trading firms exist on finding and exploiting small arbitrages between various correlated assets. If you assume a perfect market with infinitely many participants and infinite liquidity, then this “works” - there is no distortion at scale.
Large trading firms exist on finding and exploiting small arbitrages between various correlated assets. If you assume a perfect market with infinitely many participants and infinite liquidity, then this “works” - there is no distortion at scale.