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Greg Lippmann
$110,000
It gives the buyer the right to buy a stock at a fixed price for a certain amount of time.
Capital One Financial
Cornwall Capital Management
Event-driven investing is an investment strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event.
If enough subprime loans deafulated, the CDOs would collapse.
No, their investment strategy was a gamble that was sure to result in some losses and some successes.
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.
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.
Long-Term Equity Anticipation Security
Collateralized Debt Obligation
They initially started in Berkeley, California and later moved to New York City.
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.
Deutsche Bank
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.
An ISDA
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.
The cost of the options for their unsuccessful investment were simply minute to the gains acquired in the other successful investments.
Goldman Sachs
Deutsche Bank
Bear Stearns
Lehman Brothers
J.P. Morgan
UBS
Morgan Stanley
Merrill Lynch
They realized that the longer the option, the more ridiculous the results generated by the model were.
Ben believed that financial options were systematically mispriced, and the market often underestimated the likelihood of drastic moves in prices.
Greg Lippmann
Event-driven investing
What does the acronym LEAP stand for? These are the derivative securities that Charlie and Jamie purchased in the Capital One investment.
What was the name of the investment strategy that Charlie Ledly and Jamie Mai employed?
How did Ben Hocket explain the success of Charlie and Jamie's investment strategy?
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 name of the company that Charlie and Jamie first invested in that resulted in the realization of their unique investment strategy?
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 two specific traits were Charlie and Jamie looking for in CDOs?
What was the starting amount of money for Charlie and Jamie's money management firm?
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?
In what city did Charlie and Jamie start their company and where did they eventually move to?
Why was $30 not the "right" price for shares of Capital One stock when Charlie and Jamie invested in the company?
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?
What does CDO stand for?
What was the primary error in the Black-Scholes option pricing model that Charlie and Jamie exploited in the Capital One investment?
What was the name of the company that served as the ISDA for Charlie and Jamie's business?
What event would cause CDOs to collapse?
What was the "hunting license" Charlie and Jamie needed in order to deal directly with big businesses such as Goldman Sachs and Bear Stearns?
Why did Charlie and Jamie buy credit default swaps on the double-A tranche of CDOs instead of the triple-B-rated bonds?
Was Charlie and Jamie's investment strategy guaranteed to always work? Why or why not?
Generally explain event-driven investing.
Name or describe two of the three companies that Charlie and Jamie first had success with using their unique investment strategy.
What was the name of the money management firm that Jamie Mai and Charlie Ledley started in 2003?
Why were unsuccessful investments not a big deal in the investment strategy that Charlie and Jamie employed?
| Description | Match: |
What was the name of the investment strategy that Charlie Ledly and Jamie Mai employed? | Event-driven investing |
Generally explain 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. |
Was Charlie and Jamie's investment strategy guaranteed to always work? Why or why not? | No, their investment strategy was a gamble that was sure to result in some losses and some successes. |
Why were unsuccessful investments not a big deal in the investment strategy that Charlie and Jamie employed? | The cost of the options for their unsuccessful investment were simply minute to the gains acquired in the other successful investments. |
How did Ben Hocket explain the success of Charlie and Jamie's investment strategy? | Ben believed that financial options were systematically mispriced, and the market often underestimated the likelihood of drastic moves in prices. |
What was the name of the money management firm that Jamie Mai and Charlie Ledley started in 2003? | Cornwall Capital Management |
What was the name of the company that served as the ISDA for Charlie and Jamie's business? | Deutsche Bank |
What was the "hunting license" Charlie and Jamie needed in order to deal directly with big businesses such as Goldman Sachs and Bear Stearns? | An ISDA |
In what city did Charlie and Jamie start their company and where did they eventually move to? | They initially started in Berkeley, California and later moved to New York City. |
What was the starting amount of money for Charlie and Jamie's money management firm? | $110,000 |
What was the name of the company that Charlie and Jamie first invested in that resulted in the realization of their unique investment strategy? | Capital One Financial |
Describe one instance in which Charlie and Jamie's investment strategy proved unsuccessful. | 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. |
Who, in particular, did Charlie and Jamie buy the credit default swaps from? | Greg Lippmann |
Name or describe two of the three companies that Charlie and Jamie first had success with using their unique investment strategy. | Capital One United Pan-European Cable (UPC) A company that delivered oxygen tanks directly to sick people in their homes. |
Why was $30 not the "right" price for shares of Capital One stock when Charlie and Jamie invested in the company? | 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. |
Name three busniesses that could act as an ISDA for small investors like Charlie and Jamie? | Goldman Sachs Deutsche Bank Bear Stearns Lehman Brothers J.P. Morgan UBS Morgan Stanley Merrill Lynch |
What does a LEAP allow the buyer to do? | It gives the buyer the right to buy a stock at a fixed price for a certain amount of time. |
What was the primary error in the Black-Scholes option pricing model that Charlie and Jamie exploited in the Capital One investment? | 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. |
What does the acronym LEAP stand for? These are the derivative securities that Charlie and Jamie purchased in the Capital One investment. | Long-Term Equity Anticipation Security |
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? | They realized that the longer the option, the more ridiculous the results generated by the model were. |
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? | Greg Lippmann |
What does CDO stand for? | Collateralized Debt Obligation |
What event would cause CDOs to collapse? | If enough subprime loans deafulated, the CDOs would collapse. |
Why did Charlie and Jamie buy credit default swaps on the double-A tranche of CDOs instead of the triple-B-rated bonds? | 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. |
What two specific traits were Charlie and Jamie looking for in CDOs? | 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. |
