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His writing is really entertaining and informative. But I have to disagree with this. The point of hedging is risk management. If something really weird and une
by bo1024 6y ago
His writing is really entertaining and informative. But I have to disagree with this. The point of hedging is risk management. If something really weird and unexpected is happening, basing decisions on a standard options value calculator seems like a terrible idea.
Also, you have to decide: do you think this was a stupid (retail) investor or a smart (institutional) one? If stupid, how do they have a few million dollars to blow on a bet like this? If smart, might they have some plan, like they think they can trigger a squeeze of some kind? This all just raises so many questions for me.
- akavi 6y agoHe knows (Matt Levine always knows), and addresses that very fact in a footnote: > To be clear, market makers are not required to do what the model tells them, and the “common sense” answer is perhaps ambiguous. Arguably the fact that someone bought thousands of these options means that the probability of them paying off is a bit higher than the model suggests. If you are selling way-way-way-out-of-the-money options, you probably should not be blindly following your model. Here is a story I likefrom Nassim Nicholas Taleb.
- bo1024 6y agoAh, missed that, thanks. One thing I dislike about this sort of conversational writing is "Here's a very strong claim that I want you to believe[1]" "[1] footnote refuting that claim, but you should still believe it".