Yes, rather obviously that was the point I was making.
Not that obviously.
I wouldn’t quite compare it roulette, as the expected return on the underlying TSLA stock is positive, while it’s negative with roulette. That said, this was probably more a volatility play as ChinaGuy described.
As I think about it more, I think he may have a case to recoup some of his losses. If he indeed had investment advisors from the banks who acted as fiduciaries, then they better have evidence that they advised him to at least cash out some of his oversized position in Tesla. I’m assuming Canadian law would be similar to US law here.
I think what you’re suggesting here is that in addition to buying call options like some risk-tolerant speculators might do, this guy was also selling puts. It’s an angle I hadn’t thought of, but it’s a reasonable additional factor for what happened – in short, it seems that the guy was in the throes of severe gambling fever, and believing that Tesla had nowhere to go but up, leveraged everything to the max to such an extent that even a small drop in Tesla share value would have been devastating.
So when TSLA went into a major decline through the whole of 2022, all his call options would have become worthless, and the put options he sold would have obligated him to settle the accounts at far above market price. And as all this was happening, his broker would be calling daily demanding more money on his margin accounts.
Good thing the guy’s young. An older person’s heart would not have been able to survive the stress.
But then, an older person would not likely have been so incredibly stupid and naive.
I do wonder if an additional factor in all of this is the allure of Tesla, the persona and confidence of Musk, and the feeling of getting in on “new” technology, the “next big thing”…
Would he have gone “all in” on American Water Works stock?
(US News “Best stock to invest in long-term”)
Totally. We don’t want people earning any money unless they are digging ditches to do so.
you realize you are in the minority though right?
If this guy wins his case, it could be the end of retail financial services. After all, what institution is going to sell investments if they can be found liable for investor losses?
Thanks for the explanation. My thinking is that the investment bank may have assumed that someone who was doing things like that was sophisticated enough.
And you said that you worked in equity derivatives. I remember Warren Buffett saying that he didn’t invest in derivatives himself because he didn’t understand them. That seems a sensible rule; if you don’t fully understand the investment product, don’t buy (or sell) it.
Congratulations on excluding a rather large middle that consists of more than 99% of the population!
Perhaps you’re not familiar with the fallacy of the excluded middle.
The fundamental principles of capitalism are sound. There’s nothing wrong with someone running a business offering a stake in the business in return for some capital, which helps the business grow and provides investors with the ability to share in the profits.
The problem is that the process has morphed into so many unproductive niches that much of it bears little resemblance to its original intent. There’s a whole population of billionaires who do absolutely nothing productive, the beneficiaries of inherited wealth and the favouritism of a broken financial system so perverted that billions are being made through schemes that most people don’t even understand, let alone benefit from (WTF is a “credit default swap derivative” and what good has it ever done for any normal human being?) The top 1% own 50% of all of America’s investment instruments – stocks, bonds, and mutual funds. They hold 31% of the total national wealth, while the bottom 50% holds 2.6%.
I don’t want to get into a debate about capitalism, but whoa there, wolves, there’s a big excluded middle here. There are ways to have productive well-regulated capitalism.
Of course. I was being intentionally provocative to make a point. Much of that excluded middle class owns stock or, at the very least, has money in an interest bearing account. In either case, they are making additional money on their saved or invested money without “providing a service or producing anything of value”.
Yes, making $415 million dollars seems outrageous from an initial investment of $88k. But as seen, there was an extreme amount of risk being taken. It was inevitable a collapse was imminent. Would Smapti also consider someone making $415 million by winning a lottery with a $1 ticket purchase also “one of the strongest indictments of capitalism that [he’s] ever heard”? That was an absurd statement on his part and needed to be called out. What this investor did was pure speculation, akin to buying a lottery ticket, and had nothing to do with capitalism.
And here I was thinking a “BC carpenter” was Jesus’s dad.
Well, yes.
you understand capitalism isn’t a zero-sum game right? Sometime in the past 200 years we’ve moved beyond mercantilist theory thinking. Someone making millions of dollars does not (necessarily) mean it is taking money from you. Additional wealth can be created. So what do you care?
Well, in my very limited understanding of derivatives, you are actually betting against other people. I could be very wrong, but shorting does in fact sound like a zero-sum game?
There are just under 3200 billionaires in the US; 317 inherited their wealth. I’d estimate more people reach that level thru divorce. It’s a fallacy that most people were born rich, or at least that level of rich.
And the almost eight million people employed in the finance industry benefit from it.
According to Statista.com, that number is billionaires worldwide, not just the US.
Billionaires by wealth source worldwide 2022 | Statista
context-less and anonymous headlines from Reddit…nice. Just to save time and make everything more convenient, what exactly are you trying to dispute from my statement?