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Another good phrase: "picking up pennies in front of a steamroller" - which is when you do the opposite strategy (lots of little gains, but with the risk of los
by Patient0 13y ago
Another good phrase: "picking up pennies in front of a steamroller" - which is when you do the opposite strategy (lots of little gains, but with the risk of losing it all and more).
- sseveran 13y agoThis specifically refers to a call of strategies that are the equivalent of writing a put option. The short term cash flows from the premium are not commensurate with the tail risk. Both LTCM and CDS on subprime are examples of this type of strategy going up. Typically the options have a duration of years which raises the probability of a tail event significantly.
- Roboprog 13y agoI love this term. One of my friends at work manages trading systems (for use by actual financial experts) and we were discussing this discredited strategy recently. It's killed one or two big companies, despite being a Nobel prize winning idea.
- ttrreeww 13y agoYou are not getting it :) The beauty is you keep the profit while the lost is socialized either via bailout or bankruptcy. That is why Wall Street is #1. Then you start another Wall Street firm. Ben will chip in the funding for basically free if you are well connected. (This is also why Wall Street pays out all profit to real people, instead of keeping it within the firm.)
- monksy 13y agoI believe that this was coined in the book "Dark Pools."