The other day, I wrote/postulated the equation:

MTM Impact of Long Ins - MTM impact of short Ins = = - (Opportunity Impact of Outs + Opportunity Impact of Virgins)

(details here)

Transposing this symbology:

<=> MTM Impact of Long Ins + (Opportunity Impact of Outs + Opportunity Impact of Virgins) = MTM impact of short Ins

Interesting perspective comes by:

Given that the present moment monetary value of gains and losses made by long and shorts must be equal in value, the insertion of Opportunity cost (which has infinite degrees of freedom for value of time) in this equation is more a logical symbolism than any arithmetical thing (which is only derivable by focusing on the present moment).

If markets are falling & the shorts are gaining, it is not only the suffering of the existing longs but a much larger mass of the Virgins is stacked in along with the Outs to fight with the Longs in their war with the shorts!

If markets are rising however, the self fulfilling prophecy of trend-following works much more given financial markets follow the economics of giffen goods (ownership is the utility, there is no physical use of the financial asset).

In simpler language what it implies to this back-bencher in the class of counting is that its not tough to visualize a mirrored convexity working in the markets. The present moment, defined in terms of change in prices, is where the Outs and Virgins appear to have the minima. But either which ways the price changes, the Outs and the Virgins are on the side of the longs!

The short seller is the loneliest animal in the food chain of the market wilds (you can see him here). He is not lonely only in the long run due to the drift, but at each change of the tick!





Speak your mind

1 Comment so far

  1. none on April 13, 2018 11:58 am

    Only when all are on the long side.


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