I can think of at least two problems with such a security, should one be devised:
- It is probably unhedgeable. That means if you go long this contract, the market-maker is short unless he can hedge that risk away somehow (or sell it to someone else).
- Unless it is on something large like the volume traded on the NYSE in one day, such a contract may be prone to manipulation. Suppose I buy such a contract on APPL and it gets close to hitting the strike on the contract. I could send a large block order to push it over the top. It's harder to do against the entire market, but with derivatives, it may be possible.
But if, somehow, should such a contract ever be devised, brokers, who are naturally long volume (due to the positive correlation with commissions), may be interested in selling time premium to hedges some of their risk.