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You're supposed to diversify your portfolio by betting on uncorrelated things. Betting both that something will go up and down is like placing money on both red

by tw1010 8y ago

You're supposed to diversify your portfolio by betting on uncorrelated things. Betting both that something will go up and down is like placing money on both red and black, it doesn't make you any richer.

sigmaprimus 8y ago
Doesn't make you any poorer either, if your rich you want to protect your wealth. I believe it is called arbitrage. https://www.investopedia.com/terms/a/arbitrage.asp https://www.investopedia.com/terms/a/arbitrage.asp It doesn't seem intuitive but there it is.
- joshu 8y ago
  Incorrect. Arbitrage is risklessly taking advantage of contemporaneous price differences by buying in one place and selling in another at the same time.
  - sigmaprimus 8y ago
    OK, but I still stand behind my premise. Bookies make money regardless by which team wins. Casinos show profits betting on red and black simultaneously because of the zeros. And it happens all the time in much more complex way in markets. Also the financial term I was thinking of I believe is called "Futures" and it is used to protect against large swings in currency values between countries. Inverters exploit this through arbitrage.
    - tw1010 8y ago
      I think this is wishful thinking. It'd be neat if there was incentive on both sides of the debate, to bet both against and for the idea that climate change will happen. Unfortunately that's not how it is: the real direction of the change in climate will be the most profitable option, and that's where investors will flood. And yeah, that might cause a self-fulfilling prophecy (incentivizing and accelerating climate change), but that's just how it is, that's where we are. Maybe we can try to spread false ideas like yours to make investors think it's good to invest on both sides, but I don't have much faith in its potency to make real impact.
      - sigmaprimus 8y ago
        Could you clarify your statement? Are you of the opinion that the money is already invested on the side that climate change can not be stopped? Or the opposite?
    - buboard 8y ago
      Bookies and casinos are set up so thatvit is mathematically impossible not to win.
    - clairity 8y ago
      futures originated from commodities trading, where you wanted to lock in the price of a ton of corn or wool or whatever because you fear the price will go up. you don’t need them for currency arbitrage. you just need very fast connections to multiple currency markets, low transaction costs, and mispriced exchange rates. it’s riskless because the money itself is mispriced and you can buy it for one price (in your own currency) and sell it for another all in one transaction. you get the difference for free. that’s what makes it riskless and that’s what makes it arbitrage. keep reading those investopedia articles, it’s all in there somewhere!
    - multjoy 8y ago
      Bookies make money because they run the game.
    - ham_sandwich 8y ago
      I think you’re specifically thinking of covered interest rate arbitrage, in which a trader borrows in one currency at a cheap rate, lends in another currency at a more expensive rate and uses a currency forward to hedge out the exchange rate risk, netting the rate differential in the process. It’s not truly ‘arbitrage’ in the formal sense;there are still some notable risks in such a trade.
    - deleted 8y ago
      [deleted]
mikeash 8y ago
Can’t you construct a bet that a price will either go up or down, but not remain steady? I believe that’s called a long straddle but I’m not super knowledgeable here.
- clairity 8y ago
  yes, but that severely limits your upside, and it’s harder to thread the needle (in both timing and pricing).
  - ham_sandwich 8y ago
    In a straddle/strangle you have unlimited upside on both legs (up and down/call and put). It’s a matter of determining if the long gamma+long volatility position is worth the price you pay in option premium up front and decay thereafter (theta).
    - clairity 8y ago
      that's true, and a more complete explanation. i was taking the practical view that in most cases, the underlying options are reasonably priced and volatility is not highly unusual, so the practical upside is small at best. it's easy for the non-professional investor to lose money on these because you really need some extraodinary non-public information to exploit them.

by tw1010 8y ago

sigmaprimus 8y ago

Doesn't make you any poorer either, if your rich you want to protect your wealth. I believe it is called arbitrage. https://www.investopedia.com/terms/a/arbitrage.asp https://www.investopedia.com/terms/a/arbitrage.asp It doesn't seem intuitive but there it is.

joshu 8y ago
Incorrect. Arbitrage is risklessly taking advantage of contemporaneous price differences by buying in one place and selling in another at the same time.
- sigmaprimus 8y ago
  OK, but I still stand behind my premise. Bookies make money regardless by which team wins. Casinos show profits betting on red and black simultaneously because of the zeros. And it happens all the time in much more complex way in markets. Also the financial term I was thinking of I believe is called "Futures" and it is used to protect against large swings in currency values between countries. Inverters exploit this through arbitrage.
  - tw1010 8y ago
    I think this is wishful thinking. It'd be neat if there was incentive on both sides of the debate, to bet both against and for the idea that climate change will happen. Unfortunately that's not how it is: the real direction of the change in climate will be the most profitable option, and that's where investors will flood. And yeah, that might cause a self-fulfilling prophecy (incentivizing and accelerating climate change), but that's just how it is, that's where we are. Maybe we can try to spread false ideas like yours to make investors think it's good to invest on both sides, but I don't have much faith in its potency to make real impact.
    - sigmaprimus 8y ago
      Could you clarify your statement? Are you of the opinion that the money is already invested on the side that climate change can not be stopped? Or the opposite?
  - buboard 8y ago
    Bookies and casinos are set up so thatvit is mathematically impossible not to win.
  - clairity 8y ago
    futures originated from commodities trading, where you wanted to lock in the price of a ton of corn or wool or whatever because you fear the price will go up. you don’t need them for currency arbitrage. you just need very fast connections to multiple currency markets, low transaction costs, and mispriced exchange rates. it’s riskless because the money itself is mispriced and you can buy it for one price (in your own currency) and sell it for another all in one transaction. you get the difference for free. that’s what makes it riskless and that’s what makes it arbitrage. keep reading those investopedia articles, it’s all in there somewhere!
  - multjoy 8y ago
    Bookies make money because they run the game.
  - ham_sandwich 8y ago
    I think you’re specifically thinking of covered interest rate arbitrage, in which a trader borrows in one currency at a cheap rate, lends in another currency at a more expensive rate and uses a currency forward to hedge out the exchange rate risk, netting the rate differential in the process. It’s not truly ‘arbitrage’ in the formal sense;there are still some notable risks in such a trade.
  - deleted 8y ago
    [deleted]

mikeash 8y ago

Can’t you construct a bet that a price will either go up or down, but not remain steady? I believe that’s called a long straddle but I’m not super knowledgeable here.

clairity 8y ago
yes, but that severely limits your upside, and it’s harder to thread the needle (in both timing and pricing).
- ham_sandwich 8y ago
  In a straddle/strangle you have unlimited upside on both legs (up and down/call and put). It’s a matter of determining if the long gamma+long volatility position is worth the price you pay in option premium up front and decay thereafter (theta).
  - clairity 8y ago
    that's true, and a more complete explanation. i was taking the practical view that in most cases, the underlying options are reasonably priced and volatility is not highly unusual, so the practical upside is small at best. it's easy for the non-professional investor to lose money on these because you really need some extraodinary non-public information to exploit them.