Chapter 14
Chapter 14
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Translator: MadScientist
Chapter: 14
Chapter Title: Earning Pocket Money (3)
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In the current financial world, hitting the jackpot is incredibly tough.
Financial engineering is still developing, and it won't truly blossom for at least another decade. The bubble will peak around 2007.
But every now and then, opportunities like this arise.
"Isn't this... a bit too extreme?"
Executive Director Ha Joo-seong said. And he had every reason to.
For starters, trading options the day before expiration isn't for beginners, and barrier options are even less so.
If the exchange rate doesn't drop to 215 yen per dollar, the option I've bought will turn into worthless scrap paper under the contract terms.
And an even more crucial fact.
By expiration, the option's value melts away exponentially due to time decay. If my prediction is wrong this time, it means I've just flushed all the money down the drain as option premium.
"Even so, the yen dropping 10 percent overnight..."
He looked anxious, but I was certain.
A rock-solid certainty, drawn from what I'd seen in my previous life.
"But this way, the option premium is practically zero, right?" Ha Joo-seong muttered in disbelief.
"Of course... The extrinsic value converges to zero..."
An option has two types of value: intrinsic and extrinsic. Intrinsic value is the option's built-in worth. If the difference between the strike price on the option and the market price benefits the holder upon exercise, that difference counts as intrinsic value. For example, a discount coupon letting you buy a 300,000-won laptop for 250,000 won is worth 50,000 won.
Extrinsic value is time value. Time is the most precious commodity, represented here by volatility. Since the world can flip upside down overnight, options always carry time value. Naturally, it diminishes as expiration approaches. At exactly expiration, time value hits zero.
"Why not skip the barrier option and just buy vanilla ones? A dollar put and a yen call at the same time would give decent volatility."
To him sweating bullets, I gave a small smile and shook my head.
"No. It's fine. Go with the barrier option. Everyone roughly knows the yen will strengthen anyway. We need to go extreme to maximize gains. Set the barrier there and pick the strike price roughly."
With a standard position, even a slight yen appreciation means some profit. In other words, it retains value right up to expiration. But the option I'm buying is different. Unless the yen surges dramatically—nearly 10 percent overnight—it's trash.
Suppose the rate hits 216 yen per dollar. Even if buyers of cheap 220-yen calls cheer, with a 215 barrier, I can't exercise mine. Even holding a ridiculous 300-yen option, the contract bars me from the profit.
In short... I'm buying an option nearing expiration, with value close to zero, at a bargain price. Solely on faith that tomorrow's rate swings 10 percent.
"That's my bet. If I'm right, we win big."
At my words, Ha Joo-seong sighed and accepted.
"Yes... Whew. Since it's your call, Miss, I'll trust it. For the strike... I'll search thoroughly."
"Yeah. For now, buy some dollar puts like you suggested too. If nothing else pans out, consider binaries or whatever."
His jaw dropped in admiration.
"...No option for vanilla?"
"If you're certain about the future, no need."
Some things almost never happen in reality. Exchange rates shifting 10 percent overnight, or crazy terrorists flying planes into the World Trade Center. They call them black swans. I know countless such swans over the next few decades. Failing to profit from this would be ridiculous.
"Anyway, impressive. You remind me of the old Chairman."
"Grandfather?"
Yoo Seong-pil, Chairman of Daeha Group, wasn't big on securities.
"That insane self-confidence. Believing he's right and the world wrong, forcing it through regardless..."
"Ah. That... Yeah, could be."
I nodded vaguely. I know I come off as incredibly arrogant. Not that I plan to fix it. Still, a bit unfair.
"But I'm different. It's not just what I think is right—it's actually right."
Ha Joo-seong looked like he had plenty to say but quietly saw me off without a word.
...No rebuttal means he agrees, right?
◇◇◇◆◇◇◇ She's extraordinary.
That was Executive Director Ha Joo-seong of Daeha Securities' assessment of Yoo Ha-yeon.
'Either way, no ordinary human.'
How many people in the world would pull off such madness relying solely on their backing, unconcerned about failure?
Plenty of kids her age do crazy things. At that clueless age, wild imagination plus coincidence can yield wild results sometimes.
But... this is different.
It's pure, rational judgment leading to embracing madness. Believing it's her best move.
The incarnation of self-conviction. Childish, yet solipsistic.
He valued her boundless confidence even more than her talent. History's peak geniuses were usually like that.
And... she'd effortlessly sidestepped a mistake he'd made before, leaving him captivated.
"...Guess I need to make some calls."
He pulled out his notebook, listing people likely holding the options she wanted. Then he crossed out the last name and picked up the phone.
An old rotary phone he used for big deals.
-Click.
"Haha, calling about some options. What kind? Come on, you know I only call for OTC."
-Click.
"Yeah, the 4:05. Don't you have some hedging options? Sell me a few?"
-Click.
-Click.
-Click.
The receiver lifted and hung repeatedly, the dial whirring endlessly. Names vanished from his list until one remained.
Stanley Miller.
A rising Wall Street fund manager, a loose connection from his trading days.
With his aggressive style... he'd likely hold what she needs.
-Click.
Ha Joo-seong dialed him.
"Hey, Miller. Got any FX options to trade? Dollar/yen call with 215 barrier. Friend wants a bit for hedging, expiring September 23."
[You crazy? Buy that?]
Expected reaction. Ha Joo-seong chuckled it off.
"Not buying now. And just... a tiny amount. Pure hedge."
[Heard vaguely about dollar adjustment that day... But 10 percent swing minimum?]
"Exactly why buy it. Super cautious guy, hedging that possibility."
[Cautious? Who buys barrier options?]
He laughed incredulously, and Ha Joo-seong inwardly agreed.
Who dumps cash into barrier options for speculation? Miller probably figures it's a Japanese tycoon with millions hedging yen surge—makes sense for a pinch.
"Thinking 50,000 dollars."
Finally, a positive response.
[50k? Yeah, doable. Real hedge, huh. Fax the contract?]
Here's the tricky part.
Gut churning inside, Ha Joo-seong replied calmly.
"Not trading yet. Just giving heads-up. Courtesy for this stuff."
[...]
Silence on the line.
[When? Trade date?]
"He's thinking around September 20—"
Before he finished, curses flew.
[Crazy bastard. Hold till expiration?]
"You will, right?"
Options usually sell before expiration as time value vanishes.
But his target's implication is clear: All-in on G7 volatility.
So volatility stays high near expiration, reason to hold remains.
Miller was one such.
[...Damn, true. Was gonna swing for big... This why you called? Joo-seong?]
"Just offering another option. You know few takers at expiration."
Miller snapped irritably.
[Yeah! Why I'm still on! Devil's temptation. Chicken game with me?]
Ha Joo-seong's offer: Buy the barrier option near expiration. That's it.
But paired with the option's quirks and Miller's position, it carries weight.
-I bet dollar drops to 215 yen. I know you do too, and you're uneasy about it.
So...
If you're scared, sell that option for peanuts.