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There is, however, plenty of evidence that professional investors outperform individuals, reliably. And professionals make most of their money from non-linear d

There is, however, plenty of evidence that professional investors outperform individuals, reliably. And professionals make most of their money from non-linear derivatives (or make their own). People say that hedge funds are worse than passive investing, and that's often true, but it's true because that's after fees - professional investors routinely beat the market by 3% YoY long term averages, it's just that they are basically paid as much as they make you.

JumpCrisscross 4y ago
> professionals make most of their money from non-linear derivatives (or make their own) Source? (It’s not true for common definitions of those words.) Most hedge funds won’t touch options for the reasons I mentioned. They’re a hedging tool. (They will happily use swaps and other leveraged instruments. But those are linear.)
- sudosysgen 4y ago
  I can tell you with great certainty that at least some of the biggest institutions that are legally hedge funds do use options. And I consider highly leveraged derivatives to be non linear (because they are on the downside), which may be an abuse of common parlance. It's going to be fairly difficult to give a source, though.
- jshaqaw 4y ago
  Source my friend? I worked in hedge funds for almost two decades. All of them touched options plenty. There is a big difference between using options to get a particular risk/reward exposure you want and clueless retail chasing some meme short squeeze nonsense which has the expected value of a drunk newbie sitting down at a Vegas poker table.
  - JumpCrisscross 4y ago
    > big difference between using options to get a particular risk/reward exposure Sorry, it was my turn to be imprecise. Most hedge funds aren’t taking exposure through options but managing risk with them. Most asset managers never touch options. Most professional money managers (institutional; I’m not counting FAs) are not at hedge funds.
    - jshaqaw 4y ago
      All true.

JumpCrisscross 4y ago

> professionals make most of their money from non-linear derivatives (or make their own) Source? (It’s not true for common definitions of those words.) Most hedge funds won’t touch options for the reasons I mentioned. They’re a hedging tool. (They will happily use swaps and other leveraged instruments. But those are linear.)

sudosysgen 4y ago
I can tell you with great certainty that at least some of the biggest institutions that are legally hedge funds do use options. And I consider highly leveraged derivatives to be non linear (because they are on the downside), which may be an abuse of common parlance. It's going to be fairly difficult to give a source, though.
jshaqaw 4y ago
Source my friend? I worked in hedge funds for almost two decades. All of them touched options plenty. There is a big difference between using options to get a particular risk/reward exposure you want and clueless retail chasing some meme short squeeze nonsense which has the expected value of a drunk newbie sitting down at a Vegas poker table.
- JumpCrisscross 4y ago
  > big difference between using options to get a particular risk/reward exposure Sorry, it was my turn to be imprecise. Most hedge funds aren’t taking exposure through options but managing risk with them. Most asset managers never touch options. Most professional money managers (institutional; I’m not counting FAs) are not at hedge funds.
  - jshaqaw 4y ago
    All true.