BILLIONS S2E2 Explained: The Rise of Taylor Mason - Use of Derivatives
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- Опубліковано 5 вер 2024
- Axe Capital has a promising but unusual intern called Taylor Mason, that delivers great value to the business from the start, just like when 'they' help Mafee, the trader, to hedge a tricky situation.
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DETAILS OF THE EPISODE:
Instead of selling the stocks to the market, hoping the price won't move Taylor suggests using a "collar trade".
What is a collar?
Buy a put: have the right to sell at price x even if it goes lower. Pay a premium for that.
Sell a call: someone has the right to buy, and you have an obligation to sell even if the price goes lower. Receive a premium.
Here it is a “Zero cost collar” so the two premiums should be equal
If you look carefully at the screen, it’s not exactly the case. You’d have to hit the offer and the bid of the put, and there's a small difference.
So it’s not exactly 0-cost, but that doesn’t matter. In practice you could adjust the strike or pay a tiny premium.
How feasible is this in real life?
Based on the screen again: It was a great idea but Taylor's just an intern who has not checked the volume. On-screen volumes are tiny. In real life, they should trade OTC, but if there is no volume for the spot, it’s almost impossible to trade options.
Conclusion: You can’t solve your liquidity problems with options.
So what could they do instead? We will find out in a future episode
TRIVIA: This episode was directed by Female Director Reed Morano, cinematographer of Frozen River, Looking, and director of a great indie called Meadowland but best known for THE HANDMAIDS TALE.
Financial concepts in this episode:
👉Block trade
👉Hedging equity positions
👉 Put Call Collar
👉 Bloomberg OMON Option Monitoring
This clip was taken from BILLIONS Season 2 Ep 2 Dead Cat Bounce
ABOUT THE BILLIONS SERIES
Emmy® and Golden Globe® winners Paul Giamatti and Damian Lewis star in a complex drama about power politics in the world of New York high finance. Shrewd, savvy U.S. Attorney Chuck Rhoades (Giamatti) and the brilliant, ambitious hedge fund king Bobby "Axe" Axelrod (Lewis) are on an explosive collision course, with each using all of his considerable smarts, power and influence to outmanoeuvre the other. The stakes are in the billions in this timely, provocative series.
No copyright infringement intended.
Billions is owned by Showtime (CBS)
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Another B-R-I-L-L-I-A-N-T analysis (former options trader speaking). Well done @FintechOrama ! 👍 👍 👍 👍 👍
Thank you! I may need your help to get the answers for the next episode
Hope you enjoyed this episode and the new format. I thought we could keep the story intact but still add a lot of technical details. Please let me know your thoughts in the comments.
indeed, loved it
A very interesting and informative format. I'll try to advocate the zero cost claim of the movie: the options' price spread is always wide and traders normally don't accept the bid and ask prices, they trade the midpoint price. The midpoint price or price very close to the midpoint is usually accepted by the market maker. But of course not for such a huge size, trying to buy/sell so many options will widen the options spread even further.
@@alex_8704 Ok great point, maybe it was a zero cost collar. I felt quite proud for having spotted the bid-offer. But anyway it would definitely not work from a liquidity perspective
Loved it, I just had to deal with a butterfly spread on my derivates exam today, wish was instead a zero-cost collar
Well done you
I showed this to my professor and we used this in call for our options lesson! We had just created our collar scenario.
This is awesome, thanks for sharing. There's a follow up here, more advanced ua-cam.com/video/TQmFoCBeZNE/v-deo.html
Accurate analysis of the situation. Looking forward to the next episode!
Thanks!
I have a question. Mark Cuban mentioned he sold his company to Yahoo and was paid in Yahoo shares. And he wanted to sell off all his Yahoo shares so he used option. I'm sure he was give a ton of Yahoo shares when he sold his company. So didn't he face any liquidity issue? And how did he use options to get around it? Cause he mentioned in an interview he used options to get out of the market.
Here there's a liquidity issue on the underlying shares and they are trying to solve it with options. That won't work. In the case of Yahoo however I assume the underlying and the options were liquid. His option play was a trading strategy not a way to solve the liquidity issue (I guess).
@@InvestOrama Oh I see... Thank you for replying
tfa
How does the cash volume affect the liquidity of the option? Know the volumes are probably too low to protect a sale order that massive
Very good question. We will answer it in more details in the next episode, but one part of the answer has to do with delta hedging the option: buying and selling stock to manage the risk.
0:30 zero cost collar: buy put + sell call at the same price.
0:50 Bloomberg option monitor (OMON) screen
1:00 option can't solve the liquidity problems
✅
Not to mention the bid ask spread makes it pretty hard to get exact prices even if the price you pay for the put equated the price you sold the call for. Maybe go down a strike or 2 to add a net credit for safety? Because who cares how much you limit upside if the goal is to sell ATM @ 40
Yes good idea. Although here the real problem is liquidity, there's another video about that ua-cam.com/video/TQmFoCBeZNE/v-deo.html
@@InvestOrama Agreed. I’m no expert but if you have THAT big of a liquidity gap you might as well be screwed. I mean what would you do? Fire sell it all for half the price and have a bunch of actual zero cost or net credit collars to compensate for the loss? But also the options liquidity is about the same as the shares so would be hard to get that filled too.
@@legoman6124 you didn't watch the other video? That's where you get the answer from an expert... There's a solution
Tldr
Liquidity is fragmented but you can harness it with algorithmic trading
Good day to all. I have a question: in one of the episodes, Boby asks his sons for US presidents. Which president was after whom was after whom. 1) can you explain the essence of this. 2) What is the role of knowledge of their presidents in US society. 3) What indicator is this? 4) There is literature, but what needs to be taught to children, so that they remember their presidents? Thank you very much
replied on this in the other video already
this is seriously a brilliant channel. and the editing is superb. well done!
🤜🤛
Would lay a 0.00 ask on the combo and wait for the 100,000 contracts to fill. Who is going to sell 50000 puts and buy 50000 calls from you? that will take weeks unless you really hammer the spreads.
Spot on. Did you see the answer video?
The options wouldn't really have the liquidity either though...?
Exactly. You can see the options volume on screen so there is some liquidity but not nearly enough and it would be somehow proportional to the liquidity of the spot market.
The answer to the final question is @ 14:55 in this podcast. ua-cam.com/video/vMtNOvH0L6w/v-deo.html
I asked
"How electronic trading in real life could solve the (fictional) liquidity issues at Axe Capital from the Billions series?"
Why couldn’t you just buy an in the money put, at say 45. The cost to buy a put at 45 is 3.95, which nets you a 41.05, higher than the goal of 40. Buy that, then dump the shares down to 41.05, then exercise all of your puts
This is much better than being left selling naked calls
Is that what you see on screen put 45 at 3.95? I don't remember. You may have cracked the code
Let volume in options can be in contact size where in cash its each unit so through option if they find such thing then they can execute this strategy
But that couldn't happen because the option market maker would still need to hedge via the spot and the delta (0.7 - I'm making another video where I calculate this) means they would still have to sell 3.5M shares in the spot market - and back to square one on liquidity
You do know this is just a drama right? in practice zero cost collars are near non existent as the cost of the put rarely equals the income your receive from selling the call since they're at different strike prices. Hence, this is called a "Protective Collar" and NOT a "zero cost collar" which doesn't exist in real life
Protective Collar? Sure why not!👍
These are awesome, keep em coming.
Thanks I will
I wonder why they would be in so deep in a steel company anyway. liquidity is clearly low, and if they were bullish the commodity, ETF would've been much better.
Yeah I wonder. Maybe they took a strategic position because Axe is sometimes an activist that seats on boards to influence the company and that's the next phase where they offload
Could you analyze ‘Industry’
Great idea, I've been thinking about it. Any episode in particular?
@@InvestOrama any of them. I love watching your content!
@@erick_ftw Alright my friend. If you are asking for it, I am working on it. Coming soon to the channel!
Done ua-cam.com/video/vp-BKSNkzUg/v-deo.html
@@InvestOrama start from Episode 1!
I almost have my bachelor in business economics and I still don't understand anything of this 😂😂😂
Guess I'll just stick to my SPY puts
tahts cuz your degree is worthless
@@juanshaftpatel7488 Unfortunately, that's the only way to get a decent job here.
@@realsemig thats sad you paid to qualify for serfdom
Hey semi-atomic derivatines are an exciting world and can be fun to learn. I'm launching a course soon: free for first 100 sign ups!
@@InvestOrama het could you reply me with details of the course?
Where could one learn all about these strategies?... I’m a beginner but would love to learn more. Seems like a lot of UA-cam videos are all over the place with information
Glad you asked! We're building a course. It's not ready yet but you can sign up here and I will let you know when it's live orama.tv/learn-fintech-finance-with-films/
@@InvestOrama when is it projected to be completed?. Im excited to see it.
@@Oscarbm1234 It's a lot of work but we are working on it! The more people sign up, the faster it will happen
CFA
Watch in the money on UA-cam
Yess sorry been busy but finally we are getting into the mind of Taylor Mason
and it's a vast place
Sorry for the dumb question, but what college course someone can learn that??
Not a dumb question. I guess most finance degrees would cover derivatives
Where can I properly learn all these financial terms? I am really interested
Stay tuned, we are building some free classes based on the show
@@InvestOrama Thank you so much. Have subscribed and am waiting for it.
youtube
The food order also had a risk insuance - which is never free.
At cost of a minor stereotypical assumption, the food is most likely Ok for her. still fits a vegan, vegetarian or other religions, diets and even some allergies.
But with better analytics skills, he would have noticed that she already stated "pronouns" but not that she's a vegan. They always let you know.
You lost me there. Anyway Taylor is vegan.
@@InvestOrama
it's based on an old joke.
3 strangers are waiting for a bus.
The vegan says: "so i'm a vegan"
You literally mentioned that Taylor stated their pronouns and then used the wrong pronouns for them 🤦
Have been thinking about this for quite some time, great to see this video!
Cool and theres a second part too about liquidity
The channel I never knew I needed
Yes! what's your favourite series?
Also idk but pretty bold of them to assume those options have sufficient liquidity.
bold or plain silly?
Why does he want to sell at a lower price?
If I remember well he needs to sell above 40 there's a video about that ua-cam.com/video/TQmFoCBeZNE/v-deo.html
Love Taylor very serious but I see a heart somewhere deep down buried inside!😉♥️💯
Very deep😂
Internship has no salary eithe! Axe Capital getting it on the cheap! Will Taylor be hired on? Doubt it!
I wouldn't let them go
Not sure who is worse in the series. Her or lara.
The question is not who is the worst actress but who is the best investor? 🤩
@@InvestOrama they're both bad investors. Emotionally compromised and vengeful despite their cold mathematical outer shell.
Ouch
They *
I can tell you've never passed a series 3 licence. Your analysis is incorrect.
Teach me please I am here to learn
@@InvestOrama Bloomberg terminals can be set up to print volumes by multiples, so 300,000k vol can be anything. Also, 1 option = 100 stock, usually. They deal with primes, so a prime can just also write them options, the trade would be done on the exchange for legal reasons, but the deal can be made over the phone. If they cant collar the whole amount, they might get away with buying options at a price and selling their equity position at a lower price as to entice a delta hedge by institutions, thus creating volume.
Thank you for this Celestial response that deserves to be featured in the follow up video.
Yet IF we follow the assumption from Mafee that his only choice is to call brokers and no broker will handle the whole amount in cash I still don't see Options as a great solution.
Can't give awy too much but... I'm looking at algorithmic trading (TBC)
coool
👍
lol the vegan comment..wtf was that
A brilliant guess by mafee
Lol a guy at a hedge fund doesnt know what a collar is.
Yeah maffee has been winging it for too long
SPOILER ALERT!! SHE IS A VEGAN(in the show at least)
It'd be a surprise if they weren't. Goes with the look
The show completely sucks since Ax left, it's too bad, it was really good once. Try as they may, the rest of the cast just can;t carry it
Yup I couldn't bring myself to watch s6. Have you seen any of it?
@@InvestOrama Yeah, lost interest though after a couple of episodes
@@azspotfree Succession is the answer