I've probably mentioned this theory before, but: stock markets are a bad indicator for predicting nuclear war. If a nuclear exchange happens, stocks go to zero, so the optimal move for a local is to buy any dip caused by nuclear risk. Dead and broke isn't any worse than dead.
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Replying to @ByrneHobart
Seems like the optimal move for a non-local is buying grossly mispriced deep out of money puts, if that is one’s view on matter.
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Replying to @patio11
The trick with those bets is similar to one of the risks that real estate shorts had in 08: if you're right, your counterparty may not be around to pay. (If AIG hadn't been bailed out, or had been bailed out with a haircut for CDS counterparties, things would be different today)
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Replying to @ByrneHobart
This feels like an unsatisfactory argument to me, since that answer should make the position cheaper: if you think that is a material risk, short the counterparty. Big Short had a bunch of people who were approximately right but nobody who was approximately right *about AIG.*
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Replying to @patio11
Like, if one knows that Godzilla strikes Tokyo tomorrow, it seems impossible to me that that fact correlates with no instrument outside of Tokyo.
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Replying to @patio11
That's true: if you bought a bunch of diversified OTM puts, the ones that paid off would more than compensate for the counterparties who went under.
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Replying to @ByrneHobart
Random question for you: if a time traveler came to you in 2005 with a copy of The Big Short and convinced you of authenticity, what was the optimally capital efficient position there? (Coarse enough granularity to know names and dates but not like individual put expiry prices.)
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My spider sense says “I think it’s pits and I think it is puts on something that is in no way bespoke” but a) curious on that intuition and b) wonder what that thing was. (Individual equities? An index?)
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