Re:Insider Trader Had All the Answers
by cherryteastain on Saturday October 05, 2024 @11:25AM
(#41750518)
Don't think of it like buying a stock on the spot market like retail investors typically do. Many hedge funds place their bets by using the options market, which limits the downside on a bad bet (see e.g. the butterfly strategy [1]).
The size of the bet also depends on a lot of factors. Many hedge funds don't work like monolithic entities, rather they have a bunch of portfolio managers (PMs) who have their own allocated pools of assets from investors. These PMs decide on placing their bets based on lots of different things like their liquidity position (e.g. you don't want to lock up your cash in one position even if you're sure it'll make money when there's a risk of being margin called because of another trade) in addition to signals such as the one dicussed above.
Wouldn't that imply that every bet the fund makes is roughly of the same $$ value? I would figure more senior traders or more successful ones would vary the size of their bets relative to certainty or uncertainty of an event outcome (could be quarterly earnings, a political/geopolitical event, etc)?