October 24, 2007

Et tu, E-$? (Part 2)

(Nota bene: Please see here for Part 1 of this series.)

Given the unprecedented number of e-mails I received over the past week, I do not deem it too far fetched to suggest that many readers are likely anxiously awaiting this article to see how the saga with my recently engaged friend E-$ would turn out. Please forgive my most egregious delay in responding—a combination of mind-numbing work, crushing grief (Cal lost again!), and unexpected intoxication rendered me incapable of synthesizing coherent thoughts for the better part of this past weekend (the insinuation being, of course, that had those events not occurred, I might have synthesized said thoughts cogently—a dubious proposition at best). Anyway, I last left you, dear readers, in a state of shock, having just hung up on my friend. The next day, I called her back, finally prepared to challenge her, not with anger, but with reason.

Considering that she had just committed the greatest sacrilege that one can commit on the venerable Realm, i.e., asserting the existence of such nonsense notions as love and happiness, I fully expected E-$ to reject my thorough (and inevitably, impeccable) logic for the emotional diarrhea that generally passes for reasoned argument amongst the contemptible hopeless romantics of the world. Much to my surprise, she did not yield to this seemingly natural impulse; instead, she chose to convince me using my own language.

E-$: You're probably wondering how I could get engaged after only two months, right?
Rohit: Just a little bit . . .
E: Well, it's not as crazy as it seems. We're not getting married for at least a couple years. But think about it: if you're going to explore a partnership with someone, shouldn't you lock in an exclusive agreement as soon as you can? And what's more exclusive for a guy than a fuckin' diamond ring worth two months of pay? For me, this engagement is simply a call option.
R: (intrigued) Explain.
E: Well, I met this guy, and we clicked. He had everything I was looking for in a husband.
R: You mean, dual income and brand management, right?
E: Clearly. But, I'm not stupid enough to think it's true love or some bullshit like that. Let's get real: he proposed after two months. Who fuckin' does that? I mean, either he's a tool or he's desperate as hell, but maybe that's my type—I really do like him. But if after a couple years, I realize I was wrong, I can just bounce. I'm still young!
R: So, basically you're treating this like some hedge fund might? Paying a small fee now, so that later you might get married? Wow. That's awesome! But wait, that works for you, but what about him?
E: Oh, he doesn't know about the whole call option thing. But I suppose it is the same for him. Though I think he might actually like me. That, and he's a few years older, so he's looking to settle down. I mean, why else would he have proposed after only two months? Seriously, who does that?

Who, indeed. Instantly, my faith in my friend was restored. She had leveraged (see, e.g., here for consulting terminology) her position of strength (and her partner's foolishness), and in the process, come up with a whole new application of economic concepts for relationships that I had completely overlooked. Call options!

Sure, people often make so-called backup deals with friends to get married if both parties reach a certain age (e.g., 30), but to add the financial rigor of an actual call (or put?) option is breaking new ground! Just think of the possibilities: you sort of like the person you're dating, but aren't willing to commit just yet; for a fee (derived through our old friend DCF), you could purchase a call (to marriage) option for your partner, and then, be on your merry way. When the option comes due, you would have the choice of striking or passing.

And it's not only call options that we could use: derivatives of all sorts could be created! Credit default swaps? Interest rate swaps? Collateralized debt obligations¹ (of subprime fame)? Structured investment vehicles? Super structured investment vehicles? The possibilities are endless!

New business venture: a online dating site that doubles as a securities exchange. Thoughts? Comments? Praise? Call option offers? Please use the form below!

¹ Presumably, the idea here would be to create tranches of high-risk and low-risk people, obtain overly-optimistic ratings from rating agencies, quickly sell these non-liquid assets to institutional investors, wait until there is a credit freeze, and then dump all liabilities on the tax payer. Wait, what?