# What is money? What is inflation? **URL:** \ **Category:** Macro Economic Trends and Risks\ **Created:** [August 25, 2025, 5:26pm UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947 "2025-08-25T17:26:55Z")\ **Posts on this page:** 10\ **Page:** 2
**Author:** ![captainccs](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/captainccs/32/3775_2.png) [@captainccs](https://discussion.fool.com/u/captainccs)\ **Post date:** [August 31, 2025, 9:06am UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/21 "2025-08-31T09:06:50Z")
> [@mostlylong](#): > > My questions are about **delta hedging** , which is a result of how to value (price) an option. I never studied Delta Hedging. I don’t care how securities are priced, it’s not part of my trading method which I talk about below. > [@Gamblers Anonymous: Stocks are crack cocaine](https://discussion.fool.com/t/gamblers-anonymous-stocks-are-crack-cocaine/111527/31): > > standardize option trading through the use of the Black Scholes option pricing model. I did study the Black Scholes option pricing model. Funny thing, the market does not use it to price options. The price is set by the market, by the order book. To adjust the BS price to the market price they invented “Implied volatility.” Implied? Not real? The Black Scholes uses standard deviation, the bell curve, to guess the future. I’m not convinced that stock trading follows a normal distribution but more likely a power law distribution. Mike Klein’s charts show the real distribution vs. normal distribution. ![p3](https://us1.discourse-cdn.com/motleyfoolfree/original/3X/7/6/7632fc927c4d03fbb92498f611ea9c9d3469c92b.png) Some are close but not all. Check it out yourself. > **[BMW Method Screen Results for 30-Year Screen](https://invest.kleinnet.com/bmw1/stats30/)** How accurate can the BS pricing be? Do the Black Scholes initials tell us anything? 😈 Do you need BS to do Delta Hedging? NO! Delta is set by the market, by the order book! Delta Hedging is a mechanical way to trade. I created my own way to trade. The object of the Call Option Selector is to fish the best option from the vast ocean of Option Chains to improve the portfolios performance. The Captain o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o Asked Google: what is the practical use of the black sholes option pricing model? > The main principle behind the model is to [hedge](https://en.wikipedia.org/wiki/Hedge_(finance)) the option by buying and selling the underlying asset in a specific way to eliminate risk. This type of hedging is called “continuously revised [delta hedging](https://en.wikipedia.org/wiki/Delta_hedging)” and is the basis of more complicated hedging strategies such as those used by [investment banks](https://en.wikipedia.org/wiki/Investment_bank) and [hedge funds](https://en.wikipedia.org/wiki/Hedge_fund). [Black–Scholes model - Wikipedia](https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model#:~:text=The%20main%20principle%20behind%20the,(thanks%20to%20continuous%20revision)). **BUT Delta is set by the market, not by the option pricing model!** ---
**Author:** ![mostlylong](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/mostlylong/32/3943_2.png) [@mostlylong](https://discussion.fool.com/u/mostlylong)\ **Post date:** [August 31, 2025, 10:51am UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/22 "2025-08-31T10:51:05Z")
> [@captainccs](#): > > I never studied Delta Hedging. I don’t care how securities are priced When you sell a call on your long stock position, **you are giving up something of value** in exchange for the $1000. You are giving up the option to own the stock above the strike. And we know from the theory of asset pricing that the value of that option **does not depend on the net directional movement** of the stock, it depends only on the volatility, the fluctuations of the stock. Someone buying your call for $1000, if they sell short the stock and then delta hedge over the life of the option, they **could** , consistently, make more than $1000 from the delta hedge (plus interest earned on cash proceeds from the short sale plus interest earned on collateral posted to borrow the stock). This outcome **does not depend** on the moneyness of the option at expiry. They certainly will not lose $1000 like you describe, so it won’t be zero sum. ---
**Author:** ![captainccs](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/captainccs/32/3775_2.png) [@captainccs](https://discussion.fool.com/u/captainccs)\ **Post date:** [August 31, 2025, 4:16pm UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/23 "2025-08-31T16:16:20Z")
> [@mostlylong](#): > > Someone buying your call for $1000, if they sell short the stock and then delta hedge over the life of the option, they **could** , consistently, make more than $1000 from the delta hedge (plus interest earned on cash proceeds from the short sale plus interest earned on collateral posted to borrow the stock). Once again you must include follow-up trades by the buyer of the option to justify your argument. I concede that complex systems change the Universe (a little bit). The Captain ---
**Author:** ![mostlylong](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/mostlylong/32/3943_2.png) [@mostlylong](https://discussion.fool.com/u/mostlylong)\ **Post date:** [August 31, 2025, 5:37pm UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/24 "2025-08-31T17:37:48Z")
> [@captainccs](#): > > Once again you must include follow-up trades by the buyer of the option Why does that matter? The option you sell still has value (why else would someone buy it? why else would there be a sustainable market for it?) You sell someone a call option that has value, they **realize** that value by delta hedging over the life of the option. You sell someone a sandwich, they **realize** the sandwich’s value by consuming it. ---
**Author:** ![dividends20](https://g.foolcdn.com/misc-assets/discourse-member-avatar_120px_gold700.png) [@dividends20](https://discussion.fool.com/u/dividends20)\ **Post date:** [August 31, 2025, 6:17pm UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/25 "2025-08-31T18:17:27Z")
> [@WendyBG](#): > > I am very uneasy about this whole situation because it’s bigger and badder than 2007. A long term investor is better served by ignoring these predictions of doom and gloom. In the last 25 years, the world went through the dot com bust, great financial crisis, multiple wars, global pandemic, terrorist attacks. Every year, uber bears come up with new therories about the imminent recession and depression and are wrong every time. It does not stop them from being negative. ---
**Author:** ![captainccs](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/captainccs/32/3775_2.png) [@captainccs](https://discussion.fool.com/u/captainccs)\ **Post date:** [August 31, 2025, 6:26pm UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/26 "2025-08-31T18:26:01Z")
> [@mostlylong](#): > > > [@captainccs](#): > > > > Once again you must include follow-up trades by the buyer of the option > > Why does that matter? Because I doubt you have a working time machine to alter the past, to visit the time the option was first sold when the whole thing was a wash. If you go to the future who knows how many other trades it engenders and thus alters the future of the Universe. Why stop with my counterpart, he has counterparts who have counterparts who have counterparts until kingdom comes. The Captain ---
**Author:** ![mostlylong](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/mostlylong/32/3943_2.png) [@mostlylong](https://discussion.fool.com/u/mostlylong)\ **Post date:** [August 31, 2025, 7:23pm UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/27 "2025-08-31T19:23:39Z")
> [@captainccs](#): > > I doubt you have a working time machine It’s not that complicated. You sell a sandwich, someone buys it and eats it, thus realizing its value. > [@mostlylong](#): > > You sell someone a call option that has value, they **realize** that value by delta hedging over the life of the option. > > You sell someone a sandwich, they **realize** the sandwich’s value by consuming it. It’s strange to think that someone is buying calls that you sell and these calls have no value, but yet, somehow, there continues to be a market for these calls you are selling. ---
**Author:** ![captainccs](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/captainccs/32/3775_2.png) [@captainccs](https://discussion.fool.com/u/captainccs)\ **Post date:** [August 31, 2025, 10:15pm UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/28 "2025-08-31T22:15:40Z")
> [@mostlylong](#): > > It’s strange to think that someone is buying calls that you sell and these calls have no value, but yet, somehow, there continues to be a market for these calls you are selling. I didn’t say the calls have no value. The question was what the effect of the transaction was on the economy. Seller got the $1000 the buyer paid. Net effect on the economy NET ZERO. $1,000.00 - $1,000.00 = $0.00 You are trying to create a value after the fact IF the players do some transacting. That may be but when the call was sold the net effect of the trade on the economy was NET ZERO. $1,000.00 - $1,000.00 = $0.00 End of story. The Captain ---
**Author:** ![mostlylong](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/mostlylong/32/3943_2.png) [@mostlylong](https://discussion.fool.com/u/mostlylong)\ **Post date:** [August 31, 2025, 11:06pm UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/29 "2025-08-31T23:06:48Z")
> [@captainccs](#): > > I didn’t say the calls have no value. The question was what the effect of the transaction was on the economy. You said the seller’s gain is the buyer’s loss: > [@captainccs](#): > > Suppose I sell a covered call which expires worthless. I made $1,000 but someone lost $1,000 – a wash with no economic consequence. I am explaining why that’s not true, regardless of the moneyness of the call at expiration. The first reason is that the **long call has value**. (buy the sandwich) The second reason is the call buyer can **realize the value** through expiration by delta hedging. (eat the sandwich) And there are large, sustainable businesses built from those trades. The thing of value that is being created is the call option. If you choose not to sell the call, then that thing of value doesn’t get created. If all retail investors in the US stop trading options, then a bunch of wall street trading desks will lose a chunk of business and there will be economic consequences to many people. ---
**Author:** ![captainccs](https://sea2.discourse-cdn.com/motleyfoolfree/user_avatar/discussion.fool.com/captainccs/32/3775_2.png) [@captainccs](https://discussion.fool.com/u/captainccs)\ **Post date:** [September 1, 2025, 2:37am UTC](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947/30 "2025-09-01T02:37:29Z")
> [@mostlylong](#): > > I am explaining why that’s not true, regardless of the moneyness of the call at expiration. You explain it. I don’t believe it. Let’s leave it at that. The Captain [Previous page](https://discussion.fool.com/t/what-is-money-what-is-inflation/120947.md?page=1)