Sunday, July 26, 2015

Life's Options

I traded options (期貨) in 2012 and 2013, and I lost around $5000. I learned something from this experience.

An option with an expiry date in the far future, can be worth much. But as the option's date of expiry gradually draws near, the value of the option gradually becomes worth less and less, until it becomes nothing of worth once the option expires. Therefore, the aim of the game is to hold the option until it reaches its maximum value, then sell it, then use the proceeds to purchase the next option that will yield a high return. The aim is often not to hold on to the option until it expires, because then you may lose everything.

Options is like using money in life. As a child with a long way to go in life, the potential uses for money is vast. As one grows older, there are still lots of uses for money, but he may find that there are some things money cannot buy. As one grows old with few years left, the way he sees money changes, because the value money is diminished now that there are a lot less things of desire that can be purchased with this money. So he either spends the money on something that yields him little utility or he keeps it until the day he dies, yielding him zero wealth.

But life does have options. There are things he could have done with that money, and there are things he could have done with his life. He doesn't have to yield zero, if only he knew how to sell at the maximum of the option, to purchase the next option that will yield a high return. So that he will never yield zero, even when he dies.

"The Kingdom of Heaven is like a merchant seeking beautiful pearls, who, when he had found one pearl of great price, went and sold all that he had and bought it."

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