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how much does money mean to you?

Posted By: docriver
Date: 15 Aug 01, 8:39 am

In Response To: Attempt at some answers (Don Schlesinger)

I think it all depends on how much the money means to you if you exercise. If your net worth is only $10,000 and you have options with a B-S value of $150,000, but ony an intrinsic value of $50,000, that first increment of $50,000 is worth more than the next increment of $50,000 since it may allow you to do alot more with your life than you can do now...but the next $50,000 (or $100,000) doesn't change it as much as the first $50K does.

However, if your net worth is $500,000 then the first increment of $50K won't change your lifestyle...and probably not the whole $150K either...but with that much net worth, it means you can take the expectancy and the risk more willingly than a guy who cares more about the first $50K.

By the way, I used to trade options at a major options trading firm. Anywho, the hedging policies were thus :

1. If the risk is too big for what your boss has set for you or for yourself, hedge.
2. If you find a better or even value trade on the other side, hedge.
3. If your employing a strategy that is not yet proven, it is best to hedge and lose a little bit of ev to the hedge and to gain information for yourself and your bosses (through results).

comments on 1 : many people at the firm have been criticized at one point or another for "hedging too much". even bosses have told employees "you need to hedge less"

some people will have a problem with #3. but I think its important for a trading firm. if you employ a strategy that is a ev winner, but loses a lot of money, it is very difficult to convince others that it had pos EV, since they are not going to be trading with you every minute of every day. its just harder for them to listen to you. But once you have better numbers, and have convinced others, the same type of situations often present themselves again, and then once everyone is on board, you can pile it on.

but the problem with comparing Wall Street to Sports is that often times in Wall Street, there is no end to a trade. If you buy options, and they get deep into the money, and get exercised for stock, you now own the stock...this trade could theoretically go on forever if you never find the reasons to sell it and hedge the position (since you may never be in a spot to have zero or pos. ev).

But with sports, there is always an end to the bets. There's a natural end...and you can say that end is zero ev.

So, it is also possible that someone may say that it is right to hedge on WS but not so in Sports, and be right about it.

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Messages In This Thread

How to handle the "huge exposure game" -- Fezzik -- 12 Aug 01, 11:53 pm
So, will you be hedging against the Mariners in October? -- James -- 13 Aug 01, 12:33 am
Difference between A's and Eagles -- StevieY -- 13 Aug 01, 11:35 am
that's not a hedge -- docriver -- 13 Aug 01, 12:10 pm
Yes and no -- StevieY -- 13 Aug 01, 12:33 pm
risk -- docriver -- 13 Aug 01, 1:04 pm
Hedging -- StevieY -- 13 Aug 01, 1:38 pm
Example please? -- docriver -- 13 Aug 01, 1:56 pm
Example -- StevieY -- 13 Aug 01, 5:36 pm
because you have 40x in equity now -- docriver -- 13 Aug 01, 6:01 pm
above title should read : 18x, not 40x (nt) -- docriver -- 13 Aug 01, 6:08 pm
You aren't wagering 18,000+ -- StevieY -- 13 Aug 01, 6:11 pm
Agree to disagree -- docriver -- 13 Aug 01, 6:20 pm
You are both right, even disagreeing -- Fezzik -- 15 Aug 01, 1:32 am
Size your bets according the payoff, not the bet size. -- Stanford Wong -- 13 Aug 01, 6:39 pm
he really has found some arbitrage -- Math Boy -- 13 Aug 01, 8:21 pm
You can always overbet if the marginal EV from betting more is less than th -- docriver -- 13 Aug 01, 8:41 pm
Practical issues -- James -- 14 Aug 01, 11:27 am
i'm the minority -- docriver -- 13 Aug 01, 8:38 pm
hedging futures bets -- rainmandon -- 21 Aug 01, 7:51 pm
I understand the bet... -- StevieY -- 21 Aug 01, 7:58 pm
hedging futures -- rainmandon -- 21 Aug 01, 9:22 pm
I understand the bet... -- StevieY -- 22 Aug 01, 6:40 pm
Sea hedge -- Fezzik -- 15 Aug 01, 1:34 am
Oops.......I showed my Sea Bias -- Fezzik -- 15 Aug 01, 1:36 am
I'm in the same boat. I won't hedge. -- Stanford Wong -- 13 Aug 01, 8:57 am
Risk-averse betting? -- John May -- 13 Aug 01, 9:14 am
Agree -- Don Schlesinger -- 14 Aug 01, 1:11 pm
1 investment question -- Fezzik -- 15 Aug 01, 2:29 am
Attempt at some answers -- Don Schlesinger -- 15 Aug 01, 8:13 am
how much does money mean to you? -- docriver -- 15 Aug 01, 8:39 am
In-the-money options -- Jaeger -- 23 Aug 01, 6:44 pm
No -- Don Schlesinger -- 23 Aug 01, 8:55 pm
Risk-averse betting? -- lepto -- 14 Aug 01, 1:33 pm
Your bet suffered turf toe -- McNabb#1 -- 14 Aug 01, 4:24 am

 

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