3 ms·

Your Life Is (Almost) a Call Option

38 points by jger15 5y ago

sokoloff 5y ago
I experienced the “both side options get more valuable in extreme volatility” in GME. A day into the first large runup, I bought put options (betting against the runup continuing). I was dead-wrong and made money anyway as the increased volatility over the next several days made my options worth more even though they were now even farther out of the money. Sold all but one contract at an overall profit and kept the one losing contract as a reminder to watch it crash to zero at expiration as a lesson in hubris.
bradwood 5y ago
Isn't this just Real Options Valuation[1]? [1]: https://en.wikipedia.org/wiki/Real_options_valuation https://en.wikipedia.org/wiki/Real_options_valuation
- z2 5y ago
  That's what I thought as well. It seems the article attempts to keep closer to the financial options analogy, however, in talking about the figurative trader on the other side of the table. I'm still not understanding that in the last part about conservative industry leaders, does that mean they are figuratively selling call options that those with more risk tolerance can buy on the cheap, and proceed to disrupt things? How does one go about buying in? Seeking entry into these institutions or otherwise compete with them? (Or if we really want to get pedantic, by betting against volatility, perhaps one is effectively long on a butterfly spread...)
  - jbjbjbjb 5y ago
    I understood it as they have a position where too much volatility may knock them off their perch. So that is like being short vol in a short strangle or short straddle type of position.
Tycho 5y ago
It is my opinion that the “time value of money” is essentially an expression of optionality. All else being equal, it’s better to have money today than tomorrow (or ten years from now), because then you’ll have the options that come from spending it. Therefore optionality is the fundamental concept of finance.

3 ms·

Your Life Is (Almost) a Call Option

38 points by jger15 5y ago

sokoloff 5y ago
I experienced the “both side options get more valuable in extreme volatility” in GME. A day into the first large runup, I bought put options (betting against the runup continuing). I was dead-wrong and made money anyway as the increased volatility over the next several days made my options worth more even though they were now even farther out of the money. Sold all but one contract at an overall profit and kept the one losing contract as a reminder to watch it crash to zero at expiration as a lesson in hubris.
bradwood 5y ago
Isn't this just Real Options Valuation[1]? [1]: https://en.wikipedia.org/wiki/Real_options_valuation https://en.wikipedia.org/wiki/Real_options_valuation
- z2 5y ago
  That's what I thought as well. It seems the article attempts to keep closer to the financial options analogy, however, in talking about the figurative trader on the other side of the table. I'm still not understanding that in the last part about conservative industry leaders, does that mean they are figuratively selling call options that those with more risk tolerance can buy on the cheap, and proceed to disrupt things? How does one go about buying in? Seeking entry into these institutions or otherwise compete with them? (Or if we really want to get pedantic, by betting against volatility, perhaps one is effectively long on a butterfly spread...)
  - jbjbjbjb 5y ago
    I understood it as they have a position where too much volatility may knock them off their perch. So that is like being short vol in a short strangle or short straddle type of position.
Tycho 5y ago
It is my opinion that the “time value of money” is essentially an expression of optionality. All else being equal, it’s better to have money today than tomorrow (or ten years from now), because then you’ll have the options that come from spending it. Therefore optionality is the fundamental concept of finance.