I am not sure what you are getting at. IMO his "reflexivity" condition is nothing more than a restatement of the Lagrangian function and an action functional for financial models. Since financial models are stochastic, expectation values of various quantities contingent upon price paths (in particular in options pricing where implied volatility is affected by price paths) are given by Feynman's path integrals, where the action functional for the underlying (risk neutralized) price process defines a measure on the set of all paths (Ergodic.) If you understand Feynman path integrals explanation for the electron in the "double slit" experiment, you see "reflexivity" (the future affects the present) in it's bare essentials. In a way, the tree option pricing models are a finite approximation of path integrals technique. My guess is that Soros read about this somewhere and "(re)discovered" it subconciously, then set it into english by giving it a fancy name. I have zero doubt as to it's correctness as a very close approximation to the truth. nitro
My guess is that Soros hasn't heard of L & H, let alone applied classical dynamics in his theory of reflexivity[barf]. Nitro, put down the book. It's New Year's Day.
BTW, that 2U opteron that you recommended arrived on Friday and it's insanely-fast. I built it with dual 15k SCSIs. Boots XP in like 6 seconds. I love overkill.
Nice! I am jealous - For my next project I actually need a 1U version of the same thing, with four HS SCSI bays. nitro
Maverick made this point many pages back. I think you are beginning to see why guys pay 750k for a seat on the CBOE. And I think you are beginning to see why 95% of all traders fail including option traders. **************************************************** I just finished reading most of this thread and am enormously impressed by all of it. I'm a very novice "user" of equity options and am overwhelmed by a lot of the jargon. What literature can I read in order to learn? The question I have is this. To the extent that options are used as a means of mitigating the risk(s) inherent in ownership of the underlying, is it accurate to say that the floor is a net seller of risk premium? And that the "off-floor" market participants are net buyers of risk premium?
I would say the floor is net long risk reversals (long OTM calls and short OTM puts, short underlying). I would say the retail public is a net buyer of premium only because of the less intensive margin requirements. And I would say the buy side community is equally long and short. The floor guys are usually forced to be a net buyer of calls due to the huge institutional covered call crowd, not to mention all the trusts, foundations, endowments, etc., that sell calls every month. And the floor is a net seller of puts due to the institutional hedging programs. So let me simply this some more. Obviously we know covered calls are the same thing as short puts. So the floor is a net buyer of synthetic puts and a net seller of actual puts. They earn a nice spread on the difference.
So if there is any "mispricing" in all of it, doesn't it seem it would be thus: 1) Underlying -- overvalued 2) OTM calls -- undervalued 3) OTM puts -- overvalued 4) ATM options -- more or less correctly valued
That's just about right although it would be a stretch to say the underlying is predominantly overvalued. The rub is, these discrepancies really are not of much use to a retail trader as the typical spread is > then the price discrepancy.