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What was the name of the investment strategy that Charlie Ledly and Jamie Mai employed?
Generally explain event-driven investing.
Was Charlie and Jamie's investment strategy guaranteed to always work? Why or why not?
Why were unsuccessful investments not a big deal in the investment strategy that Charlie and Jamie employed?
How did Ben Hocket explain the success of Charlie and Jamie's investment strategy?
What was the name of the money management firm that Jamie Mai and Charlie Ledley started in 2003?
What was the name of the company that served as the ISDA for Charlie and Jamie's business?
What was the "hunting license" Charlie and Jamie needed in order to deal directly with big businesses such as Goldman Sachs and Bear Stearns?
In what city did Charlie and Jamie start their company and where did they eventually move to?
What was the starting amount of money for Charlie and Jamie's money management firm?
What was the name of the company that Charlie and Jamie first invested in that resulted in the realization of their unique investment strategy?
Describe one instance in which Charlie and Jamie's investment strategy proved unsuccessful.
Who, in particular, did Charlie and Jamie buy the credit default swaps from?
Name or describe two of the three companies that Charlie and Jamie first had success with using their unique investment strategy.
Why was $30 not the "right" price for shares of Capital One stock when Charlie and Jamie invested in the company?
Name three busniesses that could act as an ISDA for small investors like Charlie and Jamie?
What does a LEAP allow the buyer to do?
What was the primary error in the Black-Scholes option pricing model that Charlie and Jamie exploited in the Capital One investment?
What does the acronym LEAP stand for? These are the derivative securities that Charlie and Jamie purchased in the Capital One investment.
In the Black-Scholes option pricing model, what is the relationship between the length of the option and the validity of the results that Charlie and Jamie figured out?
What is the name of the man who played perhaps the most influential part in pitching the idea to buy credit default swaps on subprime mortgages?
What does CDO stand for?
What event would cause CDOs to collapse?
Why did Charlie and Jamie buy credit default swaps on the double-A tranche of CDOs instead of the triple-B-rated bonds?
What two specific traits were Charlie and Jamie looking for in CDOs?
Event-driven investing
Event-driven investing is an investment strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event.
No, their investment strategy was a gamble that was sure to result in some losses and some successes.
The cost of the options for their unsuccessful investment were simply minute to the gains acquired in the other successful investments.
Ben believed that financial options were systematically mispriced, and the market often underestimated the likelihood of drastic moves in prices.
Cornwall Capital Management
Deutsche Bank
An ISDA
They initially started in Berkeley, California and later moved to New York City.
$110,000
Capital One Financial
Convinced that there was going to be a coup in Thailand, they bought absurdly cheap options in Thai currency. The coup occurred, but the market didn't budge.
OR
Charlie found a price discrepancy in the market for gasoline futures so he quickly bought one gas contract and sold another to make a seemingly riskless profit. He then discovered that one was unleaded gas and the other was diesel.
Greg Lippmann
Capital One
United Pan-European Cable (UPC)
A company that delivered oxygen tanks directly to sick people in their homes.
The company was either a fraud or it was honest. If it was a fraud, the stock was probably worth nothing. If it was not a fraud, the stock was worth around $60 per share.
Goldman Sachs
Deutsche Bank
Bear Stearns
Lehman Brothers
J.P. Morgan
UBS
Morgan Stanley
Merrill Lynch
It gives the buyer the right to buy a stock at a fixed price for a certain amount of time.
The Black-Scholes option pricing model assumed a normal, bell-shaped distribution for future stock prices. It did not account for scenarios in which stocks had a good chance of moving drastically in a short amount of time.
Long-Term Equity Anticipation Security
They realized that the longer the option, the more ridiculous the results generated by the model were.
Greg Lippmann
Collateralized Debt Obligation
If enough subprime loans deafulated, the CDOs would collapse.
They could pay 0.5% a year for insurance on the double-A-rated slice of the CDO instead of 2% a year on the triple-B-rated bonds.
1. CDOs that contained the highest percentage of bonds backed by recent subprime mortgage loans.
2. CDOs that contained the highest percentage of other CDOs.
