看了那些男人随年纪增值的帖子，真想给你们科普下martingale的# Piebridge - 鹊桥
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Betting (1): Bengie's Free Throws
Betting, especially making silly bets, is a quintessential part of a trader'
s life. It almost seems that you have to take part in all these bets to be
considered a legit trader. This makes sense. Even though some traders
fiercely deny it, trading is essentially betting. Just like betting, you
only trade when you believe you have some advantage, like a deeper
understanding of the subject matter or a unique insight, over your opponent.
Just like betting, for a trade to take place, all the parties involved must
believe that the odds are in their favor. And just like betting, people can
have a strong conviction for the most absurd reasons.
In the 2.5 years that I was a trader, I witnessed and heard about a long
list of ridiculous bets. I personally participated in a few of them (I once
lost 50 USD for betting on George W. Bush's height. He turned out to be
shorter than I thought) and was a spectator in many more. I can't recall
them all, but I will tell you about memorable ones.
The one that transacted the most amount of money was Bengie's free throws.
Bengie is a bond options trader who probably spends more time playing poker
than trading in the pit (a pit is where traders and brokers gather to
interact. You have probably seen it on CNBC). He is a noted womanizer and
borderline alcoholic. I heard that he routinely showed up to work smelling
like beer. He is also an avid basketball player, and that's how this
particular bet arose. At one time, one of his coworkers asked him how many
free throws he could make out of one hundred. Bengie boasted that he could
do 85 or so on a good day.
"85!? Are you serious?" "Yea." "You know Reggie Miller's career average is
like 90%, right?" "So? It's not like the 90% free throw rate is the only
thing Miller did to become a legendary shooting guard." "I bet you can't do
85. That's just ridiculous." "Ohh yes. I can do it." "Do you wanna bet?"
This is how 99.9% of the bets start: two people having starkly different
opinions about something, and not willing to concede their respective
opinions.
This particular bet spread really fast in the office, and everyone thought
Bengie was out of his mind. So everyone started selling him "free throw"
futures. Here is a crash course on how these trader bets work. People first
come up with an "underlying", or "future", that they can quantify. In the
free throw case, this was the number of free throws that Bengie makes out of
one hundred tries. Then, they agree on how the future's price settles. In
Bengie's free throw bet, the settle price of the future is the number of
free throws out of one hundred that Bengie makes on a particular occasion.
That's it for the set-up. You realize profit or loss by buying and selling
these futures, or if you want to get fancy, by trading derivatives on those
futures.
Here is a dead simple example: suppose you don't think Bengie could make
more than 70 free throws. Then, you might want to sell a future at the price
of 70. Now, suppose Bengie ends up making 60 free throws out of 100. You
realize 1 (the number of futures) x 10 (the difference 70 - 60) = 10 dollars
. Implicit in this example was that the unit price is 1 USD, which was
usually the case. Continuing with the same example, if Bengie made 80 free
throws, you would lose 10 dollars, and if he made exactly 70 free throws, no
money would exchanges hands.
Most of you realize that this system, as explained, can be gamed. What if
Bengie sells a ton of futures and intentionally misses all the free throws?
But don't worry, traders are not idiots. They would not trade with Bengie
where Bengie can control the outcome easily to profit himself.
The market went out of control. People sold boatloads of futures to Bengie
at the price of 85, 80, 75, all the way down to 70. The market was one sided
all the way, and the only buyer was Bengie himself. At the end, Bengie had
to put together an Excel spreadsheet just to keep track of his purchases.
How can a 30-something pit trader who comes to work hung over twice a week
can make 85% of his free throws? No fucking way. That was what was on
everyone's mind.
Results? Bengie made 88 free throws and 40,000 USD.
People just could not believe the event unfolding in front of their eyes.
One by one, Bengie made free throws. The guy at the line was not an
inebriated philanderer but a razor-sharp trader locking in profit from a bet
he knew he could win. When Bengie made his 60th throw with 36 shots to go,
people ran outside and rushed to the ATM machines, getting ready to pay him
up. By the 100th throw, everyone had their dues ready. Nobody thought he was
as goog as Reggie Miller when it came to free throws, and in hindsight, it
was silly for them to assume that.
Betting, especially making silly bets, is a quintessential part of a trader'
s life. It almost seems that you have to take part in all these bets to be
considered a legit trader. This makes sense. Even though some traders
fiercely deny it, trading is essentially betting. Just like betting, you
only trade when you believe you have some advantage, like a deeper
understanding of the subject matter or a unique insight, over your opponent.
Just like betting, for a trade to take place, all the parties involved must
believe that the odds are in their favor. And just like betting, people can
have a strong conviction for the most absurd reasons.
In the 2.5 years that I was a trader, I witnessed and heard about a long
list of ridiculous bets. I personally participated in a few of them (I once
lost 50 USD for betting on George W. Bush's height. He turned out to be
shorter than I thought) and was a spectator in many more. I can't recall
them all, but I will tell you about memorable ones.
The one that transacted the most amount of money was Bengie's free throws.
Bengie is a bond options trader who probably spends more time playing poker
than trading in the pit (a pit is where traders and brokers gather to
interact. You have probably seen it on CNBC). He is a noted womanizer and
borderline alcoholic. I heard that he routinely showed up to work smelling
like beer. He is also an avid basketball player, and that's how this
particular bet arose. At one time, one of his coworkers asked him how many
free throws he could make out of one hundred. Bengie boasted that he could
do 85 or so on a good day.
"85!? Are you serious?" "Yea." "You know Reggie Miller's career average is
like 90%, right?" "So? It's not like the 90% free throw rate is the only
thing Miller did to become a legendary shooting guard." "I bet you can't do
85. That's just ridiculous." "Ohh yes. I can do it." "Do you wanna bet?"
This is how 99.9% of the bets start: two people having starkly different
opinions about something, and not willing to concede their respective
opinions.
This particular bet spread really fast in the office, and everyone thought
Bengie was out of his mind. So everyone started selling him "free throw"
futures. Here is a crash course on how these trader bets work. People first
come up with an "underlying", or "future", that they can quantify. In the
free throw case, this was the number of free throws that Bengie makes out of
one hundred tries. Then, they agree on how the future's price settles. In
Bengie's free throw bet, the settle price of the future is the number of
free throws out of one hundred that Bengie makes on a particular occasion.
That's it for the set-up. You realize profit or loss by buying and selling
these futures, or if you want to get fancy, by trading derivatives on those
futures.
Here is a dead simple example: suppose you don't think Bengie could make
more than 70 free throws. Then, you might want to sell a future at the price
of 70. Now, suppose Bengie ends up making 60 free throws out of 100. You
realize 1 (the number of futures) x 10 (the difference 70 - 60) = 10 dollars
. Implicit in this example was that the unit price is 1 USD, which was
usually the case. Continuing with the same example, if Bengie made 80 free
throws, you would lose 10 dollars, and if he made exactly 70 free throws, no
money would exchanges hands.
Most of you realize that this system, as explained, can be gamed. What if
Bengie sells a ton of futures and intentionally misses all the free throws?
But don't worry, traders are not idiots. They would not trade with Bengie
where Bengie can control the outcome easily to profit himself.
The market went out of control. People sold boatloads of futures to Bengie
at the price of 85, 80, 75, all the way down to 70. The market was one sided
all the way, and the only buyer was Bengie himself. At the end, Bengie had
to put together an Excel spreadsheet just to keep track of his purchases.
How can a 30-something pit trader who comes to work hung over twice a week
can make 85% of his free throws? No fucking way. That was what was on
everyone's mind.
Results? Bengie made 88 free throws and 40,000 USD.
People just could not believe the event unfolding in front of their eyes.
One by one, Bengie made free throws. The guy at the line was not an
inebriated philanderer but a razor-sharp trader locking in profit from a bet
he knew he could win. When Bengie made his 60th throw with 36 shots to go,
people ran outside and rushed to the ATM machines, getting ready to pay him
up. By the 100th throw, everyone had their dues ready. Nobody thought he was
as goog as Reggie Miller when it came to free throws, and in hindsight, it
was silly for them to assume that.
