BILLIONS S2E2 Explained: The Rise of Taylor Mason - Use of Derivatives
Axe Capital has a promising but unusual intern called Taylor Mason, that delivers great value to the business from the start, just like when 'they' help Mafee, the trader, to hedge a tricky situation.
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👉Watch the solution: • Billions: Solving Taylor's liquidity ...
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DETAILS OF THE EPISODE:
Instead of selling the stocks to the market, hoping the price won't move Taylor suggests using a "collar trade".
What is a collar?
Buy a put: have the right to sell at price x even if it goes lower. Pay a premium for that.
Sell a call: someone has the right to buy, and you have an obligation to sell even if the price goes lower. Receive a premium.
Here it is a “Zero cost collar” so the two premiums should be equal
If you look carefully at the screen, it’s not exactly the case. You’d have to hit the offer and the bid of the put, and there's a small difference.
So it’s not exactly 0-cost, but that doesn’t matter. In practice you could adjust the strike or pay a tiny premium.
How feasible is this in real life?
Based on the screen again: It was a great idea but Taylor's just an intern who has not checked the volume. On-screen volumes are tiny. In real life, they should trade OTC, but if there is no volume for the spot, it’s almost impossible to trade options.
Conclusion: You can’t solve your liquidity problems with options.
So what could they do instead? We will find out in a future episode
TRIVIA: This episode was directed by Female Director Reed Morano, cinematographer of Frozen River, Looking, and director of a great indie called Meadowland but best known for THE HANDMAIDS TALE.
Financial concepts in this episode:
👉Block trade
👉Hedging equity positions
👉 Put Call Collar
👉 Bloomberg OMON Option Monitoring
This clip was taken from BILLIONS Season 2 Ep 2 Dead Cat Bounce
ABOUT THE BILLIONS SERIES
Emmy® and Golden Globe® winners Paul Giamatti and Damian Lewis star in a complex drama about power politics in the world of New York high finance. Shrewd, savvy U.S. Attorney Chuck Rhoades (Giamatti) and the brilliant, ambitious hedge fund king Bobby "Axe" Axelrod (Lewis) are on an explosive collision course, with each using all of his considerable smarts, power and influence to outmanoeuvre the other. The stakes are in the billions in this timely, provocative series.
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