Tuesday, June 20, 2006

Hedging, Speculating, and Options...oh, my.

Do you ever wonder how you end up in certain spots? Last night, about 8:00, I was wondering to myself, "What am I doing here?" I start to ask myself questions about that time every Monday and Wednesday night because my brain is in such a fog that paying attention to what the professor says is no longer an option. He does a great job of teaching, but I reach maximum density fairly early in the evening. I'm pretty sure these thoughts keep me from shorting my circuits... it's too hard to daydream or doodle in a class of 6.
And, yeah, I have a test tomorrow night. Sometimes I get all...almost confident in my Finance ability because I make good grades. Then comes the next lecture where I realize I'm just faking it and someday the professor's going to figure it out! (Also, notice that "Finance" with a capital "F", not finances, which I am NEVER confident about. For that, I need a keeper or at least my checkbook does.)

So...some of what I picked up:
Hedges: great for keeping the neighbors out, but also good to keep from losing your shirt in risky investments.
Speculation: what you do to guess how many jelly beans are in the baby bottle (flash back from the family reunion) and also what you do when you think you know what prices are going to do and feel like taking a chance on losing your shirt (sort of like my Oaklawn strategy).
Futures: contracts that you make with others to sell something in the...future at the price you set today (also, a good something to daydream about when you can't figure out what the professor is talking about.
Options: another kind of contract where you buy the right (but not the obligation) to buy or sell something at a certain price set today on a date in the future. This is also what I consider when I think "Man, I wish I was at home tonight. I'm missing Treasure Hunters."

That's about my limit. I also watched the professor show us how to determine a price to sell British pounds for 6 months in the future and how to determine the pricing for call and put options. I just can't figure out why. I'm not sure I can do it myself to save my life or my "A" and surely they pay really smart people, professionals, to do this in real life, right?

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