Tag Archives: options contract

The Syntax of Finance

28 Mar

Bull straddle, bear straddle, condor spread and strangle… to the unenlightened reader they sound like gymnastic moves, or sex positions. Yet they are just several of a catalogue of options-trading strategies, each with their own anthropomorphic title. The macho, almost militaristic metaphors assigned to mathematical calculations, on the probability of movements in the option’s underlying security, can heighten the drama of playing statistics. It also helps make the process nigh impenetrable to outsiders.

Understanding the various processes behind the calculation of the option’s delta, theta, assumed volatility and so on, are fiendishly complex when applied to unpredictable real-life underlying assets or indices. But I argue that the syntax that has evolved to describe them is partly a product of the male-dominated environment on the trading floor and in the standard corporate boardroom. Women have for some time been statistically thinner on the ground and worse paid. The female FTSE Report in 2010 found that just 12.5% of directors in the FTSE 100 companies were women. When in 2007 Bloomberg analysed US Government Accountability Office data, it found women managers in finance (e.g. bank tellers and executives) earned 58.8 cents for every dollar a man earned in 2007, down from 63.9 cents in 2000.

Post-structural Musings
To avoid shrilly bleating out feminist platitudes, I borrow some words from Foucault: “the exercise of power creates and causes to emerge bodies of information… The exercise of power perpetually creates knowledge and, conversely, knowledge constantly induces effects of power.” In essence, the language that evolves from an elite demographic serves to reinforce its elite status, and exclude those from lower or rival groupings.

This is despite the fact that a 2001 study by respected behavioural economists Terrence Odean and Brab Barber, ‘Boys will be Boys: Gender, Overconfidence and Commons Stock Investment,’ found that overactive trading reduced net returns for men by 2.65% a year, compared with 1.72% for women. By analysing data on commons stock investments, for more than 35 000 households at a major discount brokerage between 1991-1997, they found men also traded 45% more than women. So the bullish rhetoric of ‘straddling’ a choice option may at times reflect, and propagate, a misplaced level of confidence.

Too Many Words
The post-structuralist perspective on communication in the financial sector would take a similar view on the proliferation of acronyms. Most well-informed members of the public know that CDO stands for collateralised debt obligation, because the unprincipled selling of these toxic assets got such bad publicity. But how many of the uninitiated can define what a UCIT is? Generally Accepted Accounting Principles (GAAP) maybe, if they have been privy to annual reports. What about REITs, Real Estate Investment Trusts? The FTSE’s SEAQ, or non-electronically executable quotation service, is not even spelt out in logical order.

Only the secretive corridors of the Ministry of Defence flow with such an abundance of need-to-know-only acronyms. The FTSE glossary would almost fill a suitcase as comprehensively as a set of alphabetised Encyclopedias. And it wouldn’t matter if all financial reporters had a unified protocol towards use of acronyms, listing the object in full with its abbreviation in brackets afterwards, if they intended to use the abbreviation alone subsequently. Often, however, they put acronyms and abbreviations in the headlines, heightening the sensation of an industry that talks to itself in code.

GoCompare.com, a Marxist reading
Marx once wrote, “The ruling ideas of each age have ever been the ideas of its ruling class,” a slightly more black-and-white view than the post-structuralist vision of an organic interaction between the ideas of different strata, relative to their weight and power. Does the ‘working-class’ not then have a distinct voice? Perhaps. Marx also wrote that “Men’s ideas are the most direct emanations of their material state,” but without the leisure afforded to the bourgoisie, who reaped the greatest portion of value added through the production process, the workers could do little more than mirror and absorb the cultural values imposed on them by the upper classes.

Gramsci was stronger on culture; Marx tended to overlook it as a side issue, a distraction from the socio-economic forces that were the central motors of the capitalist system. One wonders what they would have made of today’s money marketing campaigns. Wonga.com is patently a barely-concealed attempt by grasping capitalists to blanket their eye-watering loan interest rates with tableaus of cute felt puppets. The ‘Saving the Nation’ slogan of the GoCompare ads tries to appeal to patriotic sentiment, unifying it against a blubbering, moustachioed and intensely irritating foreigner.

Money Supermarket, which depicts Scotch-drinking aristocrats in a mahogany-panelled lair replete with moose’s head and open fire, is a self-referential portrayal of inbred upper-class gentlemen toasting their financial success. It is just too much of a stereotype to be true, right? Finally, Comparethemarket.com is a calculated post-Freudian attack on consumer’s emotional sensibilities. ‘Oh look, it’s a talking meerkat. Awwww.’ By linking the audience’s empathetic connection to fictional site Comparethemeerkat.com, where these furry Eastern European immigrants chase each other’s tails and… drink scotch, to the real site, advertisers are playing on viewers’ emotions in the most obvious way. And now they are giving away free meerkat toys. Classic behavioural reward psychology