Zeev's Turnips - No Politics Message Board

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Strategies & Market Trends : Zeev's Turnips - No Politics

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To: SOROS who wrote (1937)	10/28/2001 1:50:04 PM
From: Steve Lee	Read Replies (1) of 99280

The ratio referred to in that essay relates to notional value, not shareholder equity. Notional value is purely that - a notion. I made my comments on that essay on another thread recently. I gave an example of notional value which illustrated that I could buy an IBM put contract for $25. It would "control" 100 IBM shares giving a "notional value" of over $10,000 dollars. The author of that essay could say I have an "implied leverage ratio" in excess of 400. But I would say my maximum risk on that position is exactly $25. The $10,000 "notional value" is irrelevant in deciding whether my put investment is prudent or not. BTW I do not hold any IBM puts. It was just an example I used for the sake of round numbers.

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