Chapter 14: Earning Pocket Money (3)

Making a fortune in the current financial market is incredibly difficult.

Financial engineering, which would flourish later, was still a decade away, with the peak of the bubble around 2007.

However, opportunities like this arise occasionally.

“This… this is excessive, isn’t it?”

Ha Jusung, the executive director, voiced his concern. Understandably so.

Trading options the day before maturity is not for beginners, and barrier options even less so.

If the exchange rate doesn’t fall to 215 yen per dollar, the options I bought will become worthless.

And, more importantly.

The value of options at maturity decays exponentially due to time decay. If my prediction is wrong, I will lose all my money to option premiums.

“Even so, for the yen to drop by 10% overnight…”

He looked uneasy, but I was certain.

A strong certainty born from my past life’s experience.

“But this way, the option premium is almost nonexistent.”

Ha Jusung mumbled, dumbfounded.

“Of course… because the extrinsic value is nearly zero…”

Options have two types of value: intrinsic and extrinsic.

Intrinsic value is the option’s inherent value. If the difference between the exercise price and the market price benefits the option holder, it’s intrinsic value.

For example, a 300,000 won laptop with a 250,000 won discount coupon has an intrinsic value of 50,000 won.

Extrinsic value is time value. Time is the most valuable asset; here, it represents volatility. Because the world can change overnight, options always have time value.

This naturally decreases as maturity approaches.

At maturity, the time value is zero.

“Why not buy vanilla options instead of barrier options? Buying dollar put and yen call options simultaneously would create significant volatility.”

Wiping sweat, he looked at me with questioning eyes. I smiled, shaking my head.

“No, it’s fine. Buy barrier options. Everyone knows the yen is likely to rise. We need to go to extremes to maximize profit. Set the barrier accordingly, and choose the exercise price as you see fit.”

With a standard position, any yen appreciation leads to some profit.

In other words, it maintains value until right before maturity.

But the option I’ll buy is different. Unless the yen rises sharply, nearly 10% overnight, it’s worthless.

Suppose the exchange rate hits 216 yen per dollar. Those who bought cheap 220 yen call options will rejoice, but with a barrier of 215 yen, I can’t exercise my option.

Even if I held an incredibly high 300 yen per dollar option, I can’t profit due to the contract terms.

In short.

I’m buying an option with nearly zero value near maturity at a rock-bottom price.

Based solely on my belief that the exchange rate will fluctuate by 10% overnight.

“That’s my bet. If I’m right, I win.”

At my words, Ha Jusung sighs and accepts my decision.

“Yes. Haa. It’s your decision, Miss. I’ll find the best exercise price.”

“Yes. Buy dollar put options similarly, and if that’s not enough, consider other options like binary options.”

He gapes in amazement.

“……Aren’t vanilla options an option?”

“With certainty about the future, there’s no need for vanilla options.”

Some events are extremely rare.

An exchange rate shifting 10% overnight, or a sudden terrorist attack on the World Trade Center.

These are called black swans.

I know countless black swans that will emerge over the coming decades. It would be absurd not to profit from them.

“Anyway, you’re amazing. You remind me of the old Chairman.”

“Grandpa?”

Yu Seongpil doesn’t like the securities world, does he?

“That crazy self-belief. Thinking he’s right, the world is wrong, and somehow forcing his will upon the world…”

“Ah. If you mean that… yes, that’s possible.”

I nod vaguely.

I know I appear arrogant. I have no intention of changing, however.

Still, it’s a bit frustrating.

“But I’m different. I’m not just thinking I’m right, I am right.”

Ha Jusung seems to have a lot to say, but remains silent, simply seeing me off.

…He didn’t refute me, so he must agree.

***

An extraordinary person.

Ha Jusung, executive director of Daeha Securities, made this assessment of Yu Hayeon.

‘She’s anything but ordinary.’

How many people in this world would take such a crazy risk, unconcerned about failure?

Many children take crazy risks. Their immature judgment, combined with imagination and chance, can occasionally lead to extreme outcomes.

But… this is different.

She made a thoroughly rational decision, surrendering to madness. Believing it was the best course of action.

The embodiment of self-belief. She’s childlike, yet utterly self-assured.

He valued her unwavering confidence more than her inherent talent. Most geniuses who leave their mark on history usually possess such self-assurance.

And… having effortlessly avoided the mistakes he made in his past, Ha Jusung couldn’t help but be fascinated by her.

“…I need to start making some calls.”

He takes out his notebook, compiling a list of people who might hold the options Yu Hayeon wants. He crosses out the last name and picks up the phone.

An old rotary phone, used by Ha Jusung for important matters.

-Click.

“Haha, I need to buy some options. What kind? Ah, you know what I need. If it weren’t OTC, I wouldn’t be calling, right?”

-Click.

“Hey, Sasa-o. Didn’t your company have options for hedging? Could you sell me a few?”

-Click.

-Click.

-Click.

The dial spins, number after number. Names are crossed out from Ha Jusung’s notebook, until only one remains.

Stanley Miller.

A promising fund manager on Wall Street. Ha Jusung had a connection with him from his trading days.

With his aggressive investment style… he probably has the options Hayeon wants.

-Click.

Ha Jusung dials Miller’s number.

“Oh, Mr. Miller. Do you have yen/dollar barrier options, with a barrier at 215, for hedging? A contact wants to buy some, expiring September 23rd.”

[…Are you insane? You want to buy that? ]

The expected response. Ha Jusung laughs lightly, brushing it off.

“Not immediately. And only a small trade. Hedging, just in case.”

[Hmm, I heard something. They’re adjusting the dollar’s value… but as you say, a 10% fluctuation, at least?]

“Precisely why we’re buying. A very cautious person, apparently, considering this possibility.”

[Cautious? What cautious person buys barrier options?]

Miller laughs in disbelief; Ha Jusung secretly agrees.

Who in their right mind would put all their cash into barrier options for speculation? Miller would assume it’s a Japanese investor with millions of dollars.

That person might have extreme options for hedging against a sharp yen rise.

“I’m looking at around 50,000 dollars.”

A more positive response.

[50,000 dollars? Ah, that’s manageable. Looks like real hedging. Okay. Fax me the contract?]

This is where things get tricky.

Despite his inner anxiety, Ha Jusung replies calmly.

“I’m not looking to trade now. Just letting you know. It’s courteous to give advance notice.”

[···]

Silence on the other end.

[When? The trade date?]

“The buyer is thinking around September 20th…”

Before he finishes, a curse erupts from the other end.

[You’re insane. I won’t hold that until maturity!]

“You will.”

Normally, option prices decay to zero near maturity. People usually sell beforehand.

But Ha Jusung’s offer is clear. Betting everything on the volatility of the finance ministers’ meeting.

Therefore, even near maturity, volatility is high, giving a reason to hold the option.

Miller was one such person.

[…Damn, you’re right. I was going to try for a big win… Was this the plan, Jusung?]

“I wanted to give you another choice. As you know, few people will buy that volume right before maturity.”

Miller responds irritably.

[Right! That’s why I’m on this call! A devil’s temptation. You’re daring me to a chicken game?]

Ha Jusung’s offer: to buy barrier options right before maturity. Just that.

But the combination of the option’s peculiarity and Miller’s position gives it special meaning.

-I’m betting the dollar will fall to 215 yen. And I know you’ve also bet on it, and you are anxious about it.

Therefore…

Sell the option for a small profit if you’re nervous.