Optionality is for Innumerate Cowards

These mountain climbers probably haven’t even heard of put options.

Why Optionality?

Paying for Insurance

  1. It’s a bad deal financially.
  2. It’s utterly cowardly.

Cash, Uber, Open Calendars, Loneliness, and Other Forms of Optionality

  • Cash is a universal call option: cash is the right to buy any asset for its future market price, even if that market price is lower than today’s. This is a tautology, but it’s a useful reframing: when you hold cash, you’re betting that future asset prices will represent more attractive purchase opportunities than today. Interestingly enough, this tautology gives us a neat way to reframe the truism that volatility is highest during market declines: higher asset volatility increases the value of an option, so all else being equal, volatility should raise the value of cash-the-option relative to the value of the volatile asset.
  • Ride sharing rather than car ownership is an optionality trade: you’re not strictly buying or selling optionality here. A car is an option to get from point A to point B for the cost of gas and depreciation, with the caveat that Point A and Point B are where you parked. You pay a lot upfront for that option, but it saves you money if you drive a lot. Ride-sharing economics illustrate the economies of scale present in selling volatility: any one driver who promised 24/7 pickup/dropoff for one subscriber would have a lot of downtime and slow arrival time, but a whole network of drivers mutes the impact of spikes and lulls in demand.
  • An open calendar is a call option on opportunities: In one of the classic Pmarca blog posts, Marc Andreessen advises keeping a completely open schedule. It’s a compelling idea, especially given his case study — Arnold Schwarzenegger’s casual career pivot from movie star to politician in charge of one of the world’s ten largest economies. This schedule works well for people with a combination of traits: no major project absorbing their time, and enough fame/status that they can just demand that everybody else block off time on their calendar for a maybe meeting with you. But try it before you’ve achieved Andreessen/Schwarzenegger fame, and you may find that the result is that you lose out on productive meetings altogether.
  • Loneliness: an optionality-maximizing strategy: Close friends and family drastically curtail your freedom, in ways large and small. A few years ago, I applied for a job on a lark, got it, and moved to a different coast for six months. Earlier this year, I moved less than a mile, with two kids and a pregnant wife; it was arguably harder. At a smaller level: literally as I wrote the last sentence, my one-year-old (Happy birthday, Mallory!) blew a giant spit-bubble on the Escape key. Not a specific problem I had to deal with when I was childless, but still a net win. I suspect that delayed family formation among millennials is a general expression of their desire to maximize optionality.

The Solution

  1. If you actually implement them as an order, you’re basically pre-committing to panicking in proportion to everybody else. This is dangerous behavior, and it tends to exacerbate market volatility. [7]
  2. If you implement mental stop losses, you’ll generally find that you don’t have the fortitude to execute on them.




I write about technology (more logos than techne) and economics. Newsletter: https://diff.substack.com/

Love podcasts or audiobooks? Learn on the go with our new app.

Recommended from Medium

Economics of Life We often wonder how amazing economics is, if we have that broad perspective of…

Commodity Trading? What is in it for me?

Borrowing Money for Payroll? Why?

Why The Pros Fail to Beat the Market

$20 off when you spend $149 on office machines (excludes HP and Epson) with code PR5DLR59 at Quill.c

Bank Nifty Analysis for 8th April 2022

Payday loans and court?

Starting 1/15: 40% Off your Old Navy purchase (including Clearance!).

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Byrne Hobart

Byrne Hobart

I write about technology (more logos than techne) and economics. Newsletter: https://diff.substack.com/

More from Medium

Move out, Inflation. Deflation’s in the house.

How to End the Fed — Go Green Instead

Bargaining Kills Economy

A Way To Solve The Extreme Surge In Fuel prices