Comments on: Lessons from Bear Stearns indictments? Don’t trust anybody or anything. http://schulzkelaw.com/lessons-from-bear-stearns-indictments-dont-trust-anybody-or-anything/ Legal, negotiation and tax counsel for business Fri, 04 Mar 2011 00:50:02 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Old Atlantic http://schulzkelaw.com/lessons-from-bear-stearns-indictments-dont-trust-anybody-or-anything/comment-page-1/#comment-66 Old Atlantic Sat, 21 Jun 2008 19:47:05 +0000 http://schulzkelaw.com/?p=64#comment-66 Everyone in this case couldn't pass an exam on what hedged means. When someone says hedged without qualification, it means delta hedged, i.e. against market level. Funds sells call options on SPX and buys SPX so its delta neutral. They say they are hedged. That's standard speak. Are they hedged against volatility? No. You can say its hedged and 5 seconds later says its not hedged against volatility. Its not a contradiction, because when you say its hedged w/o saying specifically against what, it means against market level but doesn't include volatility hedged. http://en.wikipedia.org/wiki/The_Greeks Q: Are you hedged. A: Yes. (only means delta hedged) Q: Are you vega hedged? A: No. Q: Are you delta hedged. A: Yes. Hedged can mean hedged against some variable or parameter indicated by context or by prior discussion or understanding. If someone says hedged to customers, he is not speaking about being vega hedged. How many customers know what vega is? Can these prosecutors pass a test on the Greeks in Black Scholes? They have no idea what the words mean or how they are used in context. They should be given an instant on the spot written exam on different meaning of hedged and their answers posted on the internet. Then the indictment should be dropped. Everyone in this case couldn’t pass an exam on what hedged means. When someone says hedged without qualification, it means delta hedged, i.e. against market level.

Funds sells call options on SPX and buys SPX so its delta neutral. They say they are hedged. That’s standard speak.

Are they hedged against volatility? No. You can say its hedged and 5 seconds later says its not hedged against volatility. Its not a contradiction, because when you say its hedged w/o saying specifically against what, it means against market level but doesn’t include volatility hedged.

http://en.wikipedia.org/wiki/The_Greeks

Q: Are you hedged.

A: Yes. (only means delta hedged)

Q: Are you vega hedged?

A: No.

Q: Are you delta hedged.

A: Yes.

Hedged can mean hedged against some variable or parameter indicated by context or by prior discussion or understanding. If someone says hedged to customers, he is not speaking about being vega hedged. How many customers know what vega is?

Can these prosecutors pass a test on the Greeks in Black Scholes? They have no idea what the words mean or how they are used in context. They should be given an instant on the spot written exam on different meaning of hedged and their answers posted on the internet. Then the indictment should be dropped.

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