Simkin: Binary prediction pricing communicates risk clearer than traditional asset prices
Todd Simkin · Todd Simkin - Game of Trading at Susquehanna (EP.399) · Aug 5, 2024 · at 56:52
Todd Simkin of Susquehanna International Group explains the structural advantages of binary prediction contracts over standard equities and derivatives.
0:00 / 0:34exact quote · 34.4s
720p mp4 · rendered on demand · StarZero watermark
“So having a price that you can immediately turn into a probability really leads to improved communication about the underlying risk in a way that you don't have even in the financial markets. What does it mean for a stock to be trading for a 117 dollars? You have to make some assumptions or build in some other balance in order to understand what pricing means in any other asset class. This asset class is super clean. We know very clearly what bet is being made. We know very clearly what opinion is being expressed in the marketplace based on the price, and then we can ask ourselves again if that's the fair price.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Todd Simkin
Simkin: Unlimited upside asymmetry won't stop venture capitalists from going broke
“But that does not mean because of the asymmetries that venture capital is a winning business because you've got this unlimited upside, or that insurance is a losing business because you've got this unlimited downside. Ultimately, what it comes down to is appro…”
Simkin: Black-Scholes wrongly assumes stock distributions are right-skewed, not left-skewed
“The Black-Scholes model, which is literally Nobel Prize winning math, this is amazing stuff, has assumptions built into it that we know are just wrong. Among the assumptions that are built in is a normal distribution of stock returns, which would lead to a log…”
Simkin: Traders are made, not born, and can be taught
“That they had the firm belief that traders are Made, not born. So it's not the case that you have to find somebody who is inherently a trader, and then you just put them in the right spot, and they go. Instead, they said, if you bring us any smart person, if y…”
Simkin: Susquehanna refuses to lock in profits while expected value is positive
“At Susquehanna, we'd say, no, if anything, if we're able to buy more at 19, and we still think it's worth 20, then we would. The fact that we got to buy it for 10 is great, sort of confirmed now by the fact that someone's willing to pay 19, but that doesn't me…”
Simkin: SIG backed ByteDance for diversification, not foreseeing TikTok's global dominance
“I alluded to being fortunate enough to invest in ByteDance when it was a several million dollar company before it became a several billion dollar company. It'd be great in hindsight to say we are so good at figuring out what social media platform is going to b…”
Simkin: A five-year fund structure would have forced SIG out of ByteDance
“If we had entered our ByteDance position, and it was in a fund where the investors needed to get paid back in five years, we would have closed out of that position and made a little bit. It would have been happy day in the office, and we would have been out of…”