Options intro

[2rosy]

 

[Pekelo]

Some criticism of the otherwise excellent video:

"The diagrams actually do very well showing the concepts visually without really going into the details of the math.

But they did cut Dr. Lo quite a few times. Especially when he's about to explain options aren't the only derivatives and that 10 trillion figure includes futures (which is arguably a bigger market because of its link to resource production.)

I also think they did a poor job at explaining why the derivative market is so much bigger than the market in the underlying."

 

[shMark]

The math is pretty intense.

 

[Slow Learning Elf]

10 trillion figure

Most of the "10 TRILLION" is the gross notional value of various interest rates derivatives (mostly interest rate swaps). The whole thing is monumentally stupid because the actual value of these derivatives is a very small faction of the notional value (which is why the value is "notional"). Anyway, back to the original programming.

 

[schizo]

Just exactly what do Black-Scholes and Jim Simons have in common? Yeah, I know he's a genius, but why was he in the video as far as options pricing is concerned?

 

[Quanto]

Just exactly what do Black-Scholes and Jim Simons have in common? Yeah, I know he's a genius, but why was he in the video as far as options pricing is concerned?

Me too wonders what Jim Simons has to do with options at all
I too think he did not deserve to be on that video about options.
B/c also the following article claims that Jim Simons explicitly avoids options, futures, cryptocurrencies, and illiquid stocks :
https://www.algotradingai.com/jim-simmons-trading-strategy/

James H Simons or Jim Simons, the founder of American Hedge Fund, Renaissance Technologies is famously known for generating an average annual return of 66% by one of the funds of his firm and the same is responsible for catapulting him to become the wealthiest hedge fund manager in America. What is even more impressive is, he managed to generate this return over a period of thirty years from 1988 to 2018. Renaissance Technologies has amassed an Asset under Management of $75 Billion and is a trend setter when it comes to Quantitative Trading.
...
Simons also showed that we need to rid ourselves of human biases by cutting off human emotions as far as possible when it comes to trade. In fact his scientific approach and pure quant models were meant to counter biases, both cognitive and emotional. They propose hypotheses, then test and use or review them to achieve a predetermined output.

The strategies also showed us that it is prudent to avoid illiquid stocks, options, futures and cryptocurrencies as money can be lost in the bid-ask spread. There could be issues associated with volume and you may not be able to exit a position if and when you want. It would be best if you also aimed to trade various signals on multiple asset classes.
...

 

[newwurldmn]

Most of the "10 TRILLION" is the gross notional value of various interest rates derivatives (mostly interest rate swaps). The whole thing is monumentally stupid because the actual value of these derivatives is a very small faction of the notional value (which is why the value is "notional"). Anyway, back to the original programming.

I think trend following and momentum investors produce a greater risk to the world than derivatives.