Binary Options: power of buying and weakness of selling

No gods, no kings, only NOPE - or divining the future with options flows. [Part 3: Hedge Winding, Unwinding, and the NOPE]

Hello friends!
We're on the last post of this series ("A Gentle Introduction to NOPE"), where we get to use all the Big Boy Concepts (TM) we've discussed in the prior posts and put them all together. Some words before we begin:
  1. This post will be massively theoretical, in the sense that my own speculation and inferences will be largely peppered throughout the post. Are those speculations right? I think so, or I wouldn't be posting it, but they could also be incorrect.
  2. I will briefly touch on using the NOPE this slide, but I will make a secondary post with much more interesting data and trends I've observed. This is primarily for explaining what NOPE is and why it potentially works, and what it potentially measures.
My advice before reading this is to glance at my prior posts, and either read those fully or at least make sure you understand the tl;drs:
https://www.reddit.com/thecorporation/collection/27dc72ad-4e78-44cd-a788-811cd666e32a
Depending on popular demand, I will also make a last-last post called FAQ, where I'll tabulate interesting questions you guys ask me in the comments!
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So a brief recap before we begin.
Market Maker ("Mr. MM"): An individual or firm who makes money off the exchange fees and bid-ask spread for an asset, while usually trying to stay neutral about the direction the asset moves.
Delta-gamma hedging: The process Mr. MM uses to stay neutral when selling you shitty OTM options, by buying/selling shares (usually) of the underlying as the price moves.
Law of Surprise [Lily-ism]: Effectively, the expected profit of an options trade is zero for both the seller and the buyer.
Random Walk: A special case of a deeper probability probability called a martingale, which basically models stocks or similar phenomena randomly moving every step they take (for stocks, roughly every millisecond). This is one of the most popular views of how stock prices move, especially on short timescales.
Future Expected Payoff Function [Lily-ism]: This is some hidden function that every market participant has about an asset, which more or less models all the possible future probabilities/values of the assets to arrive at a "fair market price". This is a more generalized case of a pricing model like Black-Scholes, or DCF.
Counter-party: The opposite side of your trade (if you sell an option, they buy it; if you buy an option, they sell it).
Price decoherence ]Lily-ism]: A more generalized notion of IV Crush, price decoherence happens when instead of the FEPF changing gradually over time (price formation), the FEPF rapidly changes, due usually to new information being added to the system (e.g. Vermin Supreme winning the 2020 election).
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One of the most popular gambling events for option traders to play is earnings announcements, and I do owe the concept of NOPE to hypothesizing specifically about the behavior of stock prices at earnings. Much like a black hole in quantum mechanics, most conventional theories about how price should work rapidly break down briefly before, during, and after ER, and generally experienced traders tend to shy away from playing earnings, given their similar unpredictability.
Before we start: what is NOPE? NOPE is a funny backronym from Net Options Pricing Effect, which in its most basic sense, measures the impact option delta has on the underlying price, as compared to share price. When I first started investigating NOPE, I called it OPE (options pricing effect), but NOPE sounds funnier.
The formula for it is dead simple, but I also have no idea how to do LaTeX on reddit, so this is the best I have:

https://preview.redd.it/ais37icfkwt51.png?width=826&format=png&auto=webp&s=3feb6960f15a336fa678e945d93b399a8e59bb49
Since I've already encountered this, put delta in this case is the absolute value (50 delta) to represent a put. If you represent put delta as a negative (the conventional way), do not subtract it; add it.
To keep this simple for the non-mathematically minded: the NOPE today is equal to the weighted sum (weighted by volume) of the delta of every call minus the delta of every put for all options chains extending from today to infinity. Finally, we then divide that number by the # of shares traded today in the market session (ignoring pre-market and post-market, since options cannot trade during those times).
Effectively, NOPE is a rough and dirty way to approximate the impact of delta-gamma hedging as a function of share volume, with us hand-waving the following factors:
  1. To keep calculations simple, we assume that all counter-parties are hedged. This is obviously not true, especially for idiots who believe theta ganging is safe, but holds largely true especially for highly liquid tickers, or tickers will designated market makers (e.g. any ticker in the NASDAQ, for instance).
  2. We assume that all hedging takes place via shares. For SPY and other products tracking the S&P, for instance, market makers can actually hedge via futures or other options. This has the benefit for large positions of not moving the underlying price, but still makes up a fairly small amount of hedges compared to shares.

Winding and Unwinding

I briefly touched on this in a past post, but two properties of NOPE seem to apply well to EER-like behavior (aka any binary catalyst event):
  1. NOPE measures sentiment - In general, the options market is seen as better informed than share traders (e.g. insiders trade via options, because of leverage + easier to mask positions). Therefore, a heavy call/put skew is usually seen as a bullish sign, while the reverse is also true.
  2. NOPE measures system stability
I'm not going to one-sentence explain #2, because why say in one sentence what I can write 1000 words on. In short, NOPE intends to measure sensitivity of the system (the ticker) to disruption. This makes sense, when you view it in the context of delta-gamma hedging. When we assume all counter-parties are hedged, this means an absolutely massive amount of shares get sold/purchased when the underlying price moves. This is because of the following:
a) Assume I, Mr. MM sell 1000 call options for NKLA 25C 10/23 and 300 put options for NKLA 15p 10/23. I'm just going to make up deltas because it's too much effort to calculate them - 30 delta call, 20 delta put.
This implies Mr. MM needs the following to delta hedge: (1000 call options * 30 shares to buy for each) [to balance out writing calls) - (300 put options * 20 shares to sell for each) = 24,000 net shares Mr. MM needs to acquire to balance out his deltas/be fully neutral.
b) This works well when NKLA is at $20. But what about when it hits $19 (because it only can go down, just like their trucks). Thanks to gamma, now we have to recompute the deltas, because they've changed for both the calls (they went down) and for the puts (they went up).
Let's say to keep it simple that now my calls are 20 delta, and my puts are 30 delta. From the 24,000 net shares, Mr. MM has to now have:
(1000 call options * 20 shares to have for each) - (300 put options * 30 shares to sell for each) = 11,000 shares.
Therefore, with a $1 shift in price, now to hedge and be indifferent to direction, Mr. MM has to go from 24,000 shares to 11,000 shares, meaning he has to sell 13,000 shares ASAP, or take on increased risk. Now, you might be saying, "13,000 shares seems small. How would this disrupt the system?"
(This process, by the way, is called hedge unwinding)
It won't, in this example. But across thousands of MMs and millions of contracts, this can - especially in highly optioned tickers - make up a substantial fraction of the net flow of shares per day. And as we know from our desk example, the buying or selling of shares directly changes the price of the stock itself.
This, by the way, is why the NOPE formula takes the shape it does. Some astute readers might notice it looks similar to GEX, which is not a coincidence. GEX however replaces daily volume with open interest, and measures gamma over delta, which I did not find good statistical evidence to support, especially for earnings.
So, with our example above, why does NOPE measure system stability? We can assume for argument's sake that if someone buys a share of NKLA, they're fine with moderate price swings (+- $20 since it's NKLA, obviously), and in it for the long/medium haul. And in most cases this is fine - we can own stock and not worry about minor swings in price. But market makers can't* (they can, but it exposes them to risk), because of how delta works. In fact, for most institutional market makers, they have clearly defined delta limits by end of day, and even small price changes require them to rebalance their hedges.
This over the whole market adds up to a lot shares moving, just to balance out your stupid Robinhood YOLOs. While there are some tricks (dark pools, block trades) to not impact the price of the underlying, the reality is that the more options contracts there are on a ticker, the more outsized influence it will have on the ticker's price. This can technically be exactly balanced, if option put delta is equal to option call delta, but never actually ends up being the case. And unlike shares traded, the shares representing the options are more unstable, meaning they will be sold/bought in response to small price shifts. And will end up magnifying those price shifts, accordingly.

NOPE and Earnings

So we have a new shiny indicator, NOPE. What does it actually mean and do?
There's much literature going back to the 1980s that options markets do have some level of predictiveness towards earnings, which makes sense intuitively. Unlike shares markets, where you can continue to hold your share even if it dips 5%, in options you get access to expanded opportunity to make riches... and losses. An options trader betting on earnings is making a risky and therefore informed bet that he or she knows the outcome, versus a share trader who might be comfortable bagholding in the worst case scenario.
As I've mentioned largely in comments on my prior posts, earnings is a special case because, unlike popular misconceptions, stocks do not go up and down solely due to analyst expectations being meet, beat, or missed. In fact, stock prices move according to the consensus market expectation, which is a function of all the participants' FEPF on that ticker. This is why the price moves so dramatically - even if a stock beats, it might not beat enough to justify the high price tag (FSLY); even if a stock misses, it might have spectacular guidance or maybe the market just was assuming it would go bankrupt instead.
To look at the impact of NOPE and why it may play a role in post-earnings-announcement immediate price moves, let's review the following cases:
  1. Stock Meets/Exceeds Market Expectations (aka price goes up) - In the general case, we would anticipate post-ER market participants value the stock at a higher price, pushing it up rapidly. If there's a high absolute value of NOPE on said ticker, this should end up magnifying the positive move since:
a) If NOPE is high negative - This means a ton of put buying, which means a lot of those puts are now worthless (due to price decoherence). This means that to stay delta neutral, market makers need to close out their sold/shorted shares, buying them, and pushing the stock price up.
b) If NOPE is high positive - This means a ton of call buying, which means a lot of puts are now worthless (see a) but also a lot of calls are now worth more. This means that to stay delta neutral, market makers need to close out their sold/shorted shares AND also buy more shares to cover their calls, pushing the stock price up.
2) Stock Meets/Misses Market Expectations (aka price goes down) - Inversely to what I mentioned above, this should push to the stock price down, fairly immediately. If there's a high absolute value of NOPE on said ticker, this should end up magnifying the negative move since:
a) If NOPE is high negative - This means a ton of put buying, which means a lot of those puts are now worth more, and a lot of calls are now worth less/worth less (due to price decoherence). This means that to stay delta neutral, market makers need to sell/short more shares, pushing the stock price down.
b) If NOPE is high positive - This means a ton of call buying, which means a lot of calls are now worthless (see a) but also a lot of puts are now worth more. This means that to stay delta neutral, market makers need to sell even more shares to keep their calls and puts neutral, pushing the stock price down.
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Based on the above two cases, it should be a bit more clear why NOPE is a measure of sensitivity to system perturbation. While we previously discussed it in the context of magnifying directional move, the truth is it also provides a directional bias to our "random" walk. This is because given a price move in the direction predicted by NOPE, we expect it to be magnified, especially in situations of price decoherence. If a stock price goes up right after an ER report drops, even based on one participant deciding to value the stock higher, this provides a runaway reaction which boosts the stock price (due to hedging factors as well as other participants' behavior) and inures it to drops.

NOPE and NOPE_MAD

I'm going to gloss over this section because this is more statistical methods than anything interesting. In general, if you have enough data, I recommend using NOPE_MAD over NOPE. While NOPE in theory represents a "real" quantity (net option delta over net share delta), NOPE_MAD (the median absolute deviation of NOPE) does not. NOPE_MAD simply answecompare the following:
  1. How exceptional is today's NOPE versus historic baseline (30 days prior)?
  2. How do I compare two tickers' NOPEs effectively (since some tickers, like TSLA, have a baseline positive NOPE, because Elon memes)? In the initial stages, we used just a straight numerical threshold (let's say NOPE >= 20), but that quickly broke down. NOPE_MAD aims to detect anomalies, because anomalies in general give you tendies.
I might add the formula later in Mathenese, but simply put, to find NOPE_MAD you do the following:
  1. Calculate today's NOPE score (this can be done end of day or intraday, with the true value being EOD of course)
  2. Calculate the end of day NOPE scores on the ticker for the previous 30 trading days
  3. Compute the median of the previous 30 trading days' NOPEs
  4. From the median, find the 30 days' median absolute deviation (https://en.wikipedia.org/wiki/Median_absolute_deviation)
  5. Find today's deviation as compared to the MAD calculated by: [(today's NOPE) - (median NOPE of last 30 days)] / (median absolute deviation of last 30 days)
This is usually reported as sigma (σ), and has a few interesting properties:
  1. The mean of NOPE_MAD for any ticker is almost exactly 0.
  2. [Lily's Speculation's Speculation] NOPE_MAD acts like a spring, and has a tendency to reverse direction as a function of its magnitude. No proof on this yet, but exploring it!

Using the NOPE to predict ER

So the last section was a lot of words and theory, and a lot of what I'm mentioning here is empirically derived (aka I've tested it out, versus just blabbered).
In general, the following holds true:
  1. 3 sigma NOPE_MAD tends to be "the threshold": For very low NOPE_MAD magnitudes (+- 1 sigma), it's effectively just noise, and directionality prediction is low, if not non-existent. It's not exactly like 3 sigma is a play and 2.9 sigma is not a play; NOPE_MAD accuracy increases as NOPE_MAD magnitude (either positive or negative) increases.
  2. NOPE_MAD is only useful on highly optioned tickers: In general, I introduce another parameter for sifting through "candidate" ERs to play: option volume * 100/share volume. When this ends up over let's say 0.4, NOPE_MAD provides a fairly good window into predicting earnings behavior.
  3. NOPE_MAD only predicts during the after-market/pre-market session: I also have no idea if this is true, but my hunch is that next day behavior is mostly random and driven by market movement versus earnings behavior. NOPE_MAD for now only predicts direction of price movements right between the release of the ER report (AH or PM) and the ending of that market session. This is why in general I recommend playing shares, not options for ER (since you can sell during the AH/PM).
  4. NOPE_MAD only predicts direction of price movement: This isn't exactly true, but it's all I feel comfortable stating given the data I have. On observation of ~2700 data points of ER-ticker events since Mar 2019 (SPY 500), I only so far feel comfortable predicting whether stock price goes up (>0 percent difference) or down (<0 price difference). This is +1 for why I usually play with shares.
Some statistics:
#0) As a baseline/null hypothesis, after ER on the SPY500 since Mar 2019, 50-51% price movements in the AH/PM are positive (>0) and ~46-47% are negative (<0).
#1) For NOPE_MAD >= +3 sigma, roughly 68% of price movements are positive after earnings.
#2) For NOPE_MAD <= -3 sigma, roughly 29% of price movements are positive after earnings.
#3) When using a logistic model of only data including NOPE_MAD >= +3 sigma or NOPE_MAD <= -3 sigma, and option/share vol >= 0.4 (around 25% of all ERs observed), I was able to achieve 78% predictive accuracy on direction.

Caveats/Read This

Like all models, NOPE is wrong, but perhaps useful. It's also fairly new (I started working on it around early August 2020), and in fact, my initial hypothesis was exactly incorrect (I thought the opposite would happen, actually). Similarly, as commenters have pointed out, the timeline of data I'm using is fairly compressed (since Mar 2019), and trends and models do change. In fact, I've noticed significantly lower accuracy since the coronavirus recession (when I measured it in early September), but I attribute this mostly to a smaller date range, more market volatility, and honestly, dumber option traders (~65% accuracy versus nearly 80%).
My advice so far if you do play ER with the NOPE method is to use it as following:
  1. Buy/short shares approximately right when the market closes before ER. Ideally even buying it right before the earnings report drops in the AH session is not a bad idea if you can.
  2. Sell/buy to close said shares at the first sign of major weakness (e.g. if the NOPE predicted outcome is incorrect).
  3. Sell/buy to close shares even if it is correct ideally before conference call, or by the end of the after-market/pre-market session.
  4. Only play tickers with high NOPE as well as high option/share vol.
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In my next post, which may be in a few days, I'll talk about potential use cases for SPY and intraday trends, but I wanted to make sure this wasn't like 7000 words by itself.
Cheers.
- Lily
submitted by the_lilypad to thecorporation [link] [comments]

AMZN Trade Retrospective: Collecting a $.37 Credit for the Potential to Make Another $50

AMZN Trade Retrospective: Collecting a $.37 Credit for the Potential to Make Another $50
There are different ways to trade in a choppy environment. Here’s a deep dive on how I attempted to use weekly options to trade a potential bounce in AMZN, and collected $.37 initially, for the possibility of making $50 more, even though the trade ended up being only an $.81 winner.

The Entry

Last Thursday, 9/24, when $AMZN was trading at about $3000 a share, I was looking for a cheap way to play a bounce in the stock. During that time, my bias in the markets had begun to shift to a more bullish stance after seeing how the market had difficulty grinding lower. With that in mind, I wanted to play a potential bounce in tech. But I knew I didn’t want to pay a debit at all to play for a bounce that might not even happen, given how uncertain and choppy the markets had been, but I still wanted to set myself up to capture some large gains if AMZN did indeed bounce. Therefore, the strategy that made the most sense to me, was a Call broken wing butterfly.
Given that I’m a very short-term options trader who loves trading weeklies, I was trying to look for a cheap butterfly for the upcoming week that I could put on for a net credit. After exploring the options chain, I came across the +1/-2/+1 3300/3350/3450 call broken wing butterfly for the Oct 2 series. This fly, at the time (on Sept 24), was trading for a total of $.37 credit. Meaning, by putting on that butterfly, I would get paid $.37, and the following scenarios could happen:
  1. If AMZN decided to tank or hang out sideways and never get up close enough to the butterfly to expand the spread in my favor, then I’d walk away pocketing the $.37 credit
  2. If AMZN slowly crept up to reach exactly 3350 by expiration, I’d not only get to keep the credit, but also be able to sell the butterfly back out for $50. Of course, it doesn’t need to reach exactly 3350 by expiration. If AMZN slowly worked its way up to near 3300, then the butterfly would expand very nicely as well.
  3. If AMZN blew past 3400 by expiration, I’d see a loss, up to a maximum of $50 / spread (if $AMZN moves past 3450). That’s because the 3300/3350 long call vertical of the fly provides 50 points of coverage before I essentially start losing money from the 3350/3450 short vertical, up until that 3450 kicks in to cap off further upside losses.
So that is a rough outline of the potential scenarios that would happen with this trade.
Given the choppy market conditions, I was ok with risking $50/spread (point #3), in order to not lose money if I’m wrong on direction (point #1), while at the same time, keeping myself open to the possibility of the butterfly expanding in my favor (point #2) for some potentially very large gains.
But satisfying point #3 is tricky. I needed more data points suggesting that $AMZN wouldn’t surge higher early on in the trade. Because if $AMZN did surge higher early on in the trade, then while the 3300 long call would rise in value, those two 3350 short calls would also rise in value, and because there’d still be some time value left, they could be very juiced up and eat away at the profits of that 3300 long call, so much so that the 3450 long call won’t even be able to offset those losses, especially given how far out of the money that 3450 call is.

AMZN on 9/24, daily timeframe
Looking at the chart above on 9/24, we can see that AMZN was trading at around $3000/share. In order to reach $3300 (where the first long call of the broken wing butterfly is), the stock would need to
  1. Breach the 38% fib retracement (~AMZN=3131) of the move from the 9/2 high to the 9/21 low,
  2. Breach the 20MA and 50MA
  3. Breach the 50% fib retracement (~AMZN=3211)
  4. Breach the 61.8% fib retracement (~AMZN=3292)
before finally reaching the 3300 long call. All of these levels, I felt, should provide some resistance for AMZN to have to chew thru over the following week, before it even gets to the long call. And by that time, if AMZN did reach 3300, then the 3300 long call would still have a lot of extrinsic value left (somewhere around $20 on the last day), while the 3350 short calls would be very cheap (each around $5), so the entire spread could be roughly worth $10. Which would be great, because that means I’d be getting paid $.37 to make another $10.
So with all of the above considered, I chose to take on that upside risk, for a chance to make potentially $50 (realistically I try to aim for just half of the max profit: $25, and start harvesting profits and peeling off the flies at around $5-$10), and that day on 9/24, entered the Oct2 3300/3350/3450 call broken wing butterfly for a $.37 credit.
After entry, on Friday 9/25 and Monday 9/28, AMZN made steady progress upwards, from 3000 to 3175, breaching the 31.8% retracement and tagging the 20MA and 50MA from below.

AMZN on 9/28, daily timeframe
but this move wasn’t large and fast enough to expand the value of the 3350 short calls. In fact, theta did a great job draining those short calls, while the 3300 long call did a good job retaining its premium, so the butterfly had already expanded a bit in my favor, and I was sitting at about a small $1.00 profit.

The Adjustment

However, on Tuesday and Wednesday, AMZN began to stall out. By the end of Wednesday 9/30, when it looked like AMZN was putting in a topping tail, I decided that AMZN might not be able to make it near 3300 by expiration Friday, so I wanted to take in a bit more credit while I still could, before theta drained more of that 3300 long call. At the time, the spread was trading for almost $2.
That’s when I made a slight adjustment to the spread and sold the 3300/3310 call vertical.

AMZN on 9/30, daily timeframe
This essentially rolled the 3300 long call up to 3310, and I was able to collect a small $.44 credit for it. However, this adjustment did open me up to an additional $10 of risk to the upside, because now, the long call vertical portion of the butterfly is only $40 wide (instead of $50). Still, with only 2 days left for AMZN to go higher, I felt comfortable taking on a bit more upside risk knowing that theta is going to be working hard to drain those 3350 short calls if AMZN did decide to surge higher. And at that moment, I actually wanted AMZN to move more towards my fly. My deltas were still positive, and the risk graph showed that a move towards the short strikes of the fly would expand it by another $4-5 by Thursday.
So after this adjustment, the trade stood at a $.81 credit, and the profit potential on the fly was now $40 instead of $50. Which is still pretty good.

The Tease

On Thursday, AMZN showed some strength and closed above the 50% fib (3211), which meant that if on Friday, AMZN worked its way up to around 3300, the fly could potentially be worth $5-10. Things were looking good (on any continued bullishness, the next target for AMZN was the 61.8% fib retracement at ~3300). So I left the trade alone without making any more adjustments.

AMZN on 10/1, daily timeframe

The Flop

Unfortunately, on Thursday night, news broke out that Trump was diagnosed with Coronavirus, and the market fell lower. By the open, AMZN was already trading at around 3150, roughly 150 points below the fly. The spread had instantly lost all of its value, so I basically let it expire worthless and walked away pocketing the $.81 credit.

https://preview.redd.it/mpwrkjpk6xq51.png?width=4096&format=png&auto=webp&s=8dd7f4da7b000b2266ab57a3c23c1863f9423704
While the trade did not work out as well as I had liked, the important thing to note is that I was able to get paid even when the trade didn’t go in my favor. With options, there are ways to trade an underlying to a certain target without ponying up a debit, albeit at the cost of introducing tail risk, while offering the possibility of very large upside. This may be a style of trading that one can consider employing when the outlook of the markets is uncertain, as long as the trader is willing to make the necessary adjustments to control risk.
Which leads me to the following section:

FAQ

What if AMZN decided to surge very early on during the trade? What if AMZN had surged to 3300 with 4-5 DTE, hence juicing up the short calls and causing the butterfly to take on large negative deltas?
Even though the position would be very theta positive, I would pony up the debit to cap off the upside risk by buying the 3400/3450 call vertical, hence turning the 3300/3350/3450 broken wing butterfly into the 3300/3350/3400 balanced butterfly. From there on out until expiration, I would look for ways to reduce the debit incurred from that adjustment.

But what if AMZN tanked afterwards? You could end up getting whipsawed.
I’d rather be safe than sorry and make the necessary adjustments to avoid getting run over, because I don’t like playing the hope card. I could always undo the adjustment and look for ways to collect back more credit (at the cost of introducing risk elsewhere), depending on my new directional bias on AMZN at the time.

Your maximum loss is so large, $5000. I’d never make that bet, I would never risk $5000 to make $5000.
This style of trading is not for everyone. There are different ways to perceive risk. I don't really think of risk as binary as “max gain vs max loss”. If the trade goes against me, I’m not going to open myself up to the possibility of eating the maximum loss. I’m going to manage that risk and make sure that I don’t lose any money at all on the trade. Basically, I’m not going to just put on the trade, walk away to the prayer room, and come back at expiration and hope that AMZN expired at 3350.

Why not just join thetagang and slap on iron condors / credit spreads in this environment? You could’ve collected more credit by selling a 50 point wide put vertical with your bounce thesis.
Different traders have different styles. I personally don’t like pure premium selling strategies. I’d rather have long options in front of the shorts to open myself up for some large upside and convexity in the P/L curve, rather than limit myself to the concavity of pure premium selling strategies. Having long options in front of the shorts also helps me sleep better at night.

It’s hard to read this. Is there a more visual explanation?
Here’s a video on it: https://www.youtube.com/watch?v=8uq76fZ3EME

TL;DR - I used weekly options to trade a potential bounce in AMZN, and got paid $.37 initially to do so, for the possibility of making $50 more. While the trade did not pan out, I walked away pocketing $.81 for being wrong.
submitted by OptionsBrewers to options [link] [comments]

The Challenges of Designing a Modern Skill, Part 3

Okay, Wendy’s or Walgreens or whoever, I don’t care who you are, you’re listening to the rest.

Introduction to Part 3

Welcome back one last time to “The Challenges of Designing a Modern Skill,” a series where we discuss all aspects of skill design and development. In Part 1, we talked about OSRS’s history with skills, and started the lengthy conversation on Skill Design Philosophy, including the concepts of Core, Expansion, and Integration. This latter topic consumed the entirety of Part 2 as well, which covered Rewards and Motivations, Progression, Buyables, as well as Unconstructive Arguments.
Which brings us to today, the final part of our discussion. In this Part 3, we’ll finish up Section 3 – Skill Design Philosophy, then move on to chat about the design and blog process. One last time, this discussion was intended to be a single post, but its length outgrew the post character limit twice. Therefore, it may be important to look at the previous two parts for clarity and context with certain terms. The final product, in its purest, aesthetic, and unbroken form, can be found here.

3-C – Skill Design Philosophy, Continued

3-12 - Balancing

What follows from the discussion about XP and costs, of course, is balancing: the bane of every developer. A company like Riot knows better than anyone that having too many factors to account for makes good balance impossible. Balancing new ideas appropriately is extremely challenging and requires a great respect for current content as discussed in Section 3-5 – Integration. Thankfully, in OSRS we only have three major balancing factors: Profit, XP Rate, and Intensity, and two minor factors: Risk and Leniency. These metrics must amount to some sense of balance (besides Leniency, which as we’ll see is the definition of anti-balance) in order for a piece of content to feel like it’s not breaking the system or rendering all your previous efforts meaningless. It’s also worthy to note that there is usually a skill-specific limit to the numerical values of these metrics. For example, Runecrafting will never receive a training method that grants 200k xp/hr, while for Construction that’s easily on the lower end of the scale.
A basic model works better than words to describe these factors, and therefore, being the phenomenal artist that I am, I have constructed one, which I’ve dubbed “The Guthix Scale.” But I’ll be cruel and use words anyway.
  • Profit: how much you gain from a task, or how much you lose. Gain or loss can include resources, cosmetics, specialized currencies, good old gold pieces, or anything on that line.
  • XP Rate: how fast you gain XP.
  • Intensity: how much effort (click intensity), attention (reaction intensity), and thought (planning intensity) you need to put into the activity to perform it well.
  • Risk: how likely is the loss of your revenue and/or resource investment into the activity. Note that one must be careful with risk, as players are very good at abusing systems intended to encourage higher risk levels to minimize how much they’re actually risking.
  • Leniency: a measure for how imbalanced a piece of content can be before the public and/or Jagex nerfs it. Leniency serves as a simple modulator to help comprehend when the model breaks or bends in unnatural ways, and is usually determined by how enjoyable and abusable an activity is, such that players don’t want to cause an outrage over it. For example, Slayer has a high level of Leniency; people don’t mind that some Slayer tasks grant amazing XP Rates, great Profits, have middling Intensity, and low Risk. On the other hand, Runecrafting has low levels of Leniency; despite low Risk, many Runecrafting activities demand high Intensity for poor XP Rates and middling Profits.
In the end, don’t worry about applying specific numbers during the conceptual phase of your skill design. However, when describing an activity to your reader, it’s always useful if you give approximations, such as “high intensity” or “low risk,” so that they get an idea of the activity’s design goals as well as to guide the actual development of that activity. Don’t comment on the activity’s Leniency though, as that would be pretty pretentious and isn’t for you to determine anyway.

3-13 - Skill Bloat

What do the arts of weaving, tanning, sowing, spinning, pottery, glassmaking, jewellery, engraving, carving, chiselling, carpentry, and even painting have in common? In real life, there’s only so much crossover between these arts, but in Runescape they’re all simply Crafting.
The distinction between what deserves to be its own skill or instead tagged along to a current skill is often arbitrary; this is the great challenge of skill bloat. The fundamental question for many skill concepts is: does this skill have enough depth to stand on its own? The developers of 2006 felt that there was sufficient depth in Construction to make it something separate from Crafting, even if the latter could have covered the former. While there’s often no clean cut between these skills (why does making birdhouses use Crafting instead of Construction?), it is easy to see that Construction has found its own solid niche that would’ve been much too big to act as yet another Expansion of Crafting.
On the other hand, a skill with extremely limited scope and value perhaps should be thrown under the umbrella of a larger skill. Take Firemaking: it’s often asked why it deserves to be its own skill given how limited its uses are. This is one of those ideas that probably should have just been thrown under Crafting or even Woodcutting. But again, the developers who made early Runescape did not battle with the same ideas as the modern player; they simply felt like Firemaking was a good idea for a skill. Similarly, the number of topics that the Magic skill covers is so often broken down in other games, like Morrowind’s separation between Illusion, Conjuration, Alteration, Destruction, Mysticism, Restoration, Enchant, Alchemy (closer to Herblore), and Unarmored (closer to Strength and Defense). Why does Runescape not break Magic into more skills? The answer is simple: Magic was created with a much more limited scope in Runescape, and there has not been enough content in any specific magical category to justify another skill being born. But perhaps your skill concept seeks to address this; maybe your Enchantment skill takes the enchanting aspects of Magic away, expands the idea to include current imbues and newer content, and fully fleshes the idea out such that the Magic skill alone cannot contain it. Somewhat ironically, Magic used to be separated into Good and Evil Magic skills in Runescape Classic, but that is another topic.
So instead of arguments about what could be thrown under another skill’s umbrella, perhaps we should be asking: is there enough substance to this skill concept for it to stand on its own, outside of its current skill categorization? Of course, this leads to a whole other debate about how much content is enough for a skill idea to deserve individuality, but that would get too deep into specifics and is outside the scope of this discussion.

3-14 - Skill Endgame

Runescape has always been a sandbox MMO, but the original Runescape experience was built more or less with a specific endgame in mind: killing players and monsters. Take the Runescape Classic of 2001: you had all your regular combat skills, but even every other skill had an endgame whose goal was helping combat out. Fishing, Firemaking, and Cooking would provide necessary healing. Smithing and Crafting, along with their associated Gathering skill partners, served to gear you up. Combat was the simple endgame and most mechanics existed to serve that end.
However, since those first days, the changing endgame goals of players have promoted a vast expansion of the endgame goals of new content. For example, hitting a 99 in any non-combat skill is an endgame goal in itself for many players, completely separate from that skill’s combat relationship (if any). These goals have increased to aspects like cosmetic collections, pets, maxed stats, all quests completed, all diaries completed, all music tracks unlocked, a wealthy bank, the collection log, boss killcounts, and more. Whereas skills used to have a distinct part of a system that ultimately served combat, we now have a vast variety of endgame goals that a skill can be directed towards. You can even see a growth in this perspective as new skills were released up to 2007: Thieving mainly nets you valuable (or once valuable) items which have extremely flexible uses, and Construction has a strong emphasis on cosmetics for your POH.
So when designing your new skill, contemplate what the endgame of your skill looks like. For example, if you are proposing a Gathering skill, what is the Production skill tie-in, and what is the endgame goal of that Production skill? Maybe your new skill Spelunking has an endgame in gathering rare collectibles that can be shown off in your POH. Maybe your new skill Necromancy functions like a Support skill, giving you followers that help speed along resource gathering, and letting you move faster to the endgame goal of the respective Production skill. Whatever it is, a proper, clear, and unified view of an endgame goal helps a skill feel like it serves a distinct and valuable purpose. Note that this could mean that you require multiple skills to be released simultaneously for each to feed into each other and form an appropriate endgame. In that case, go for it – don’t make it a repeat of RS3’s Divination, a Gathering skill left hanging without the appropriate Production skill partner of Invention for over 2 years.
A good example of a skill with a direct endgame is… most of them. Combat is a well-accepted endgame, and traditionally, most skills are intended to lend a hand in combat whether by supplies or gear. A skill with a poor endgame would be Hunter: Hunter is so scattered in its ultimate endgame goals, trying to touch on small aspects of everything like combat gear, weight reduction, production, niche skilling tools, and food. There’s a very poor sense of identity to Hunter’s endgame, and it doesn’t help that very few of these rewards are actually viable or interesting in the current day. Similarly, while Slayer has a strong endgame goal it is terrible in its methodology, overshadowing other Production skills in their explicit purpose. A better design for Slayer’s endgame would have been to treat it as a secondary Gathering skill, to work almost like a catalyst for other Gathering-Production skill relationships. In this mindset, Slayer is where you gather valuable monster drops, combine it with traditional Gathering resources like ores from Mining, then use a Production skill like Smithing to meld them into the powerful gear that is present today. This would have kept other Gathering and Production skills at the forefront of their specialities, in contrast to today’s situation where Slayer will give fully assembled gear that’s better than anything you could receive from the appropriate skills (barring a few items that need a Production skill to piece together).

3-15 - Alternate Goals

From a game design perspective, skills are so far reaching that it can be tempting to use them to shift major game mechanics to a more favourable position. Construction is an example of this idea in action: Construction was very intentionally designed to be a massive gold sink to help a hyperinflating economy. Everything about it takes gold out of the game, whether through using a sawmill, buying expensive supplies from stores, adding rooms, or a shameless piece of furniture costing 100m that is skinned as, well, 100m on a shameless piece of furniture.
If you’re clever about it, skills are a legitimately good opportunity for such change. Sure, the gold sink is definitely a controversial feature of Construction, but for the most part it’s organic and makes sense; fancy houses and fancy cosmetics are justifiably expensive. It is notable that the controversy over Construction’s gold sink mechanism is probably levied more against the cost of training, rather than the cost of all its wonderful aesthetics. Perhaps that should have been better accounted for in its design phase, but now it is quite set in stone.
To emphasize that previous point: making large scale changes to the game through a new skill can work, but it must feel organic and secondary to the skill’s main purpose. Some people really disliked Warding because they felt it tried too hard to fix real, underlying game issues with mechanics that didn’t thematically fit or were overshadowing the skill’s Core. While this may or may not be true, if your new skill can improve the game’s integrity without sacrificing its own identity, you could avoid this argument entirely. If your skill Regency has a Core of managing global politics, but also happens to serve as a resource sink to help your failing citizens, then you’ve created a strong Core design while simultaneously improving the profitability of Gathering skills.

3-16 - The Combat No-Touch Rule

So, let’s take a moment to examine the great benefits and rationale of RS2’s Evolution of Combat:
This space has been reserved for unintelligible squabbling.
With that over, it’s obvious that the OSRS playerbase is not a big fan of making major changes to the combat system. If there’s anything that defines the OSRS experience, it has to be the janky and abusable combat system that we love. So, in the past 7 years of OSRS, how many times have you heard someone pitch a new combat skill? Practically no one ever has; a new combat skill, no matter how miniscule, would feel obtrusive to most players, and likely would not even receive 25% of votes in a poll. This goes right back to Section 3-5 – Integration, and the importance of preserving the fundamentals of OSRS’s design.
I know that my intention with this discussion was to be as definitive about skill design as possible, and in that spirit I should be delving into the design philosophy specifically behind combat skills, but I simply don’t see the benefit of me trying, and the conversation really doesn’t interest me that much. It goes without saying that as expansive as this discussion is, it does not cover every facet of skill design, which is a limitation both of my capabilities and desire to do so.

3-17 - Aesthetics

I don’t do aesthetics well. I like them, I want them, but I do not understand them; there are others much better equipped to discuss this topic than I. Nonetheless, here we go.
Since the dawn of OSRS, debates over art style and aesthetics have raged across Gielinor. After all, the OSRS Team is filled with modern day artists while OSRS is an ancient game. What were they supposed to do? Keep making dated graphics? Make content with a modernized and easily digestible style? Something in-between?
While many players shouted for more dated graphics, they were approached by an interesting predicament: which dated graphics did they want? We had a great selection present right from the start of OSRS: 2002, 2003, 2004, 2005, 2006, and 2007. People hungry for nostalgia chose the era that they grew up in, leading to frequent requests for older models like the dragon or imp, most of which were denied by Jagex (except the old Mining rock models). But which era was OSRS supposed to follow?
Jagex elected to carve their own path, but not without heavy criticism especially closer to OSRS’s conception. However, they adapted to player requests and have since gone back and fixed many of the blatant early offenders (like the Kingdom of Kourend) and adopted a more consistent flavour, one that generally respects the art style of 2007. Even though it doesn’t always hit the mark, one has to appreciate the OSRS artists for making their best attempt and listening to feedback, and here’s to hoping that their art style examination mentioned in June 2020’s Gazette bears fruit.
But what exactly is the old school art style? There are simple systems by which most players judge it in OSRS, usually by asking questions like, “Would you believe if this existed in 2007?” More informed artists will start pointing out distinct features that permeated most content from back in the day, such as low quality textures, low poly models, low FPS animations, a “low fantasy” or grounded profile that appeals somewhat to realism, reducing cartoonish exaggerations, and keeping within the lore. Compiled with this, music and sound design help that art style come to life; it can be very hard on immersion when these don’t fit. An AGS would sound jarring if its special attack sounded like a weak dagger stab, and having to endure Country Jig while roaming Hosidius suddenly sweeps you off into a different universe.
But coming back to skill design, the art, models, and sound design tend to be some of the last features, mostly because the design phase doesn’t demand such a complete picture of a skill. However, simple concept art and models can vastly improve how a skill concept is communicated and comfort players who are concerned about maintaining that “old school feel.” This will be touched on again later in this discussion under Section 5-2 – Presentation and Beta Testing.

3-18 - Afterword

Now we’ve set down the modern standards for a new skill, but the statements that started this section bear repeating: the formula we’ve established does not automatically make a good or interesting skill, as hard as we might have tried. Once again, harken back to the First Great Irony: that we are trying to inject the modern interpretation of what defines a skill upon a game that was not necessarily built to contain it. Therefore, one could just as easily deny each of the components described above, as popular or unpopular as the act might be, and their opinion could be equally valid and all this effort meaningless. Don’t take these guidelines with such stringency as to disregard all other views.

5-0 - The OSRS Team and the Design Process

If you’ve followed me all the way here, you’re likely A) exhausted and fed up of any conversation concerning new skills, or B) excited, because you’ve just struck an incredible skill idea (or perhaps one that’s always hung around your head) that happens to tick off all the above checkboxes. But unfortunately for you B types, it’s about to get pretty grim, because we’re going to go through every aspect of skill design that’s exterior to the game itself. We’ll be touching on larger topics like democracy, presentation, player mindsets, effort, and resource consumption. It’ll induce a fantastic bout of depression, so don’t get left behind.

5-1 - Designing a Skill

Thus far, Jagex has offered three potential skills to OSRS, each of which has been denied. This gives us the advantage of understanding how the skill design process works behind the scenes and lets us examine some of the issues Jagex has faced with presenting a skill to the players.
The first problem is the “one strike and you’re out” phenomenon. Simply put, players don’t like applying much effort into reading and learning. They’ll look at a developer blog highlighting a new skill idea, and if you’re lucky they’ll even read the whole thing, but how about the second developer blog? The third? Fourth? Even I find it hard to get that far. In general, people don’t like long detail-heavy essays or blogs, which is why I can invoke the ancient proverb “Ban Emily” into this post and it’ll go (almost) completely unnoticed. No matter how many improvements you make between developer blogs, you will quickly lose players with each new iteration. Similarly, developer blogs don’t have the time to talk about skill design philosophy or meta-analyse their ideas – players would get lost far too fast. This is the Second Great Irony of skill design: the more iterations you have of a lengthy idea, the less players will keep up with you.
This was particularly prominent with Warding: Battle Wards were offered in an early developer blog but were quickly cut when Jagex realized how bad the idea was. Yet people would still cite Battle Wards as the reason they voted against Warding, despite the idea having been dropped several blogs before. Similarly, people would often comment that they hated that Warding was being polled multiple times; it felt to them like Jagex was trying to brute-force it into the game. But Warding was only ever polled once, and only after the fourth developer blog - the confusion was drawn from how many times the skill was reiterated and from the length of the public design process. Sure, there are people for whom this runs the opposite way; they keep a close eye on updates and judge a piece of content on the merits of the latest iteration, but this is much less common. You could argue that one should simply disregard the ignorant people as blind comments don't contribute to the overall discussion, but you should remember that these players are also the ones voting for the respective piece of content. You could also suggest re-educating them, which is exactly what Jagex attempts with each developer blog, and still people won’t get the memo. And when it comes to the players themselves, can the playerbase really be relied on to re-educate itself?
Overall, the Second Great irony really hurts the development process and is practically an unavoidable issue. What’s the alternative? To remove the developer-player interface that leads to valuable reiterations, or does you simply have to get the skill perfect in the first developer blog?
It’s not an optimal idea, but it could help: have a small team of “delegates” – larger names that players can trust, or player influencers – come in to review a new, unannounced skill idea under NDA. If they like it, chances are that other players will too. If they don’t, reiterate or toss out the skill before it’s public. That way, you’ve had a board of experienced players who are willing to share their opinions to the public helping to determine the meat and potatoes of the skill before it is introduced to the casual eye. Now, a more polished and well-accepted product can be presented on the first run of selling a skill to the public, resulting in less reiterations being required, and demanding less effort from the average player to be fully informed over the skill’s final design.

5-2 - Presentation and Beta Testing

So you’ve got a great idea, but how are you going to sell it to the public? Looking at how the OSRS Team has handled it throughout the years, there’s a very obvious learning curve occurring. Artisan had almost nothing but text blogs being thrown to the players, Sailing started introducing some concept art and even a trailer with terrible audio recording, and Warding had concept art, in game models, gifs, and a much fancier trailer with in-game animations. A picture or video is worth a thousand words, and often the only words that players will take out of a developer blog.
You might say that presentation is everything, and that would be more true in OSRS than most games. Most activities in OSRS are extremely basic, involve minimal thought, and are incredibly grindy. Take Fishing: you click every 20 seconds on a fishing spot that is randomly placed along a section of water, get rid of your fish, then keep clicking those fishing spots. Boiling it down further, you click several arbitrary parts of your computer screen every 20 seconds. It’s hardly considered engaging, so why do some people enjoy it? Simply put: presentation. You’re given a peaceful riverside environment to chill in, you’re collecting a bunch of pixels shaped like fish, and a number tracking your xp keeps ticking up and telling you that it matters.
Now imagine coming to the players with a radical new skill idea: Mining. You describe that Mining is where you gather ores that will feed into Smithing and help create gear for players to use. The audience ponders momentarily, but they’re not quite sure it feels right and ask for a demonstration. You show them some gameplay, but your development resources were thin and instead of rocks, you put trees as placeholders. Instead of ores in your inventory, you put logs as placeholders. Instead of a pickaxe, your character is swinging a woodcutting axe as a placeholder. Sure, the mechanics might act like mining instead of woodcutting, but how well is the skill going to sell if you haven’t presented it correctly or respected it contextually?
Again, presentation is everything. Players need to be able to see the task they are to perform, see the tools they’ll use, and see the expected outcomes; otherwise, whatever you’re trying to sell will feel bland and unoriginal. And this leads to the next level of skill presentation that has yet to be employed: Beta Worlds.
Part of getting the feel of an activity is not just watching, it but acting it out as well - you’ll never understand the thrill of skydiving unless you’ve actually been skydiving. Beta Worlds are that chance for players to act out a concept without risking the real game’s health. A successful Beta can inspire confidence in players that the skill has a solid Core and interesting Expansions, while a failed Beta will make them glad that they got to try it and be fully informed before putting the skill to a poll (although that might be a little too optimistic for rage culture). Unfortunately, Betas are not without major disadvantages, the most prominent of which we shall investigate next.

5-3 - Development Effort

If you thought that the previous section on Skill Design Philosophy was lengthy and exhausting, imagine having to know all that information and then put it into practice. Mentally designing a skill in your head can be fun, but putting all that down on paper and making it actually work together, feel fully fleshed out, and following all the modern standards that players expect is extremely heavy work, especially when it’s not guaranteed to pay off in the polls like Quest or Slayer content. That’s not even taking into account the potentially immense cost of developing a new skill should it pass a poll.
Whenever people complain that Jagex is wasting their resources trying to make that specific skill work, Jagex has been very explicit about the costs to pull together a design blog being pretty minimal. Looking at the previous blogs, Jagex is probably telling the truth. It’s all just a bunch of words, a couple art sketches, and maybe a basic in-game model or gif. Not to downplay the time it takes to write well, design good models, or generate concept art, but it’s nothing like the scale of resources that some players make it out to be. Of course, if a Beta was attempted as suggested last section, this conversation would take a completely new turn, and the level of risk to invested resources would exponentially increase. But this conversation calls to mind an important question: how much effort and resources do skills require to feel complete?
Once upon a time, you could release a skill which was more or less unfinished. Take Slayer: it was released in 2005 with a pretty barebones structure. The fundamentals were all there, but the endgame was essentially a couple cool best-in-slot weapons and that was it. Since then, OSRS has updated the skill to include a huge Reward Shop system, feature 50% more monsters to slay, and to become an extremely competitive money-maker. Skills naturally undergo development over time, but it so often comes up during the designing of an OSRS skill that it "doesn't have enough to justify its existence." This was touched on deeply in Section 3-13 – Skill Bloat, but deserves reiterating here. While people recognize that skills continually evolve, the modern standard expects a new skill, upon release, to be fully preassembled before purchase. Whereas once you could get away with releasing just a skill's Core and working on Expansions down the line, that is no longer the case. But perhaps a skill might stand a better chance now than it did last year, given that the OSRS Team has doubled in number since that time.
However, judging from the skill design phases that have previously been attempted (as we’ve yet to see a skill development phase), the heaviest cost has been paid in developer mentality and motivational loss. When a developer is passionate about an idea, they spend their every waking hour pouring their mind into how that idea is going to function, especially while they’re not at work. And then they’re obligated to take player feedback and adapt their ideas, sometimes starting from scratch, particularly over something as controversial as a skill. Even if they have tough enough skin to take the heavy criticism that comes with skill design, having to write and rewrite repeatedly over the same idea to make it “perfect” is mentally exhausting. Eventually, their motivation drains as their labour bears little fruit with the audience, and they simply want to push it to the poll and be done with it. Even once all their cards are down, there’s still no guarantee that their efforts will be rewarded, even less so when it comes to skills.
With such a high mental cost with a low rate of success, you have to ask, “Was it worth it?” And that’s why new skill proposals are far and few between. A new skill used to be exciting for the development team in the actual days of 2007, as they had the developmental freedom to do whatever they wanted, but in the modern day that is not so much the case.

5-4 - The Problems of Democracy

Ever since the conceptualization of democracy in the real world, people have been very aware of its disadvantages. And while I don’t have the talent, knowledge, or time to discuss every one of these factors, there are a few that are very relevant when it comes to the OSRS Team and the polling process.
But first we should recognize the OSRS Team’s relationship with the players. More and more, the Team acts like a government to its citizens, the players, and although this situation was intentionally instated with OSRS’s release, it’s even more prominent now. The Team decides the type of content that gets to go into a poll, and the players get their input over whether that particular piece makes it in. Similarly, players make suggestions to the Team that, in many cases, the Team hadn’t thought of themselves. This synergy is phenomenal and almost unheard of among video games, but the polling system changes the mechanics of this relationship.
Polls were introduced to the burned and scarred population of players at OSRS’s release in 2013. Many of these players had just freshly come off RS2 after a series of disastrous updates or had quit long before from other controversies. The Squeal of Fortune, the Evolution of Combat, even the original Wilderness Removal had forced numerous players out and murdered their trust in Jagex. To try and get players to recommit to Runescape, Jagex offered OSRS a polling system by which the players would determine what went into the game, where the players got to hold all the cards. They also asked the players what threshold should be required for polled items to pass, and among the odd 50% or 55% being shouted out, the vast majority of players wanted 70%, 75%, 80%, or even 85%. There was a massive population in favour of a conservative game that would mostly remain untouched, and therefore kept pure from the corruption RS2 had previously endured.
Right from the start, players started noticing holes in this system. After all, the OSRS Team was still the sole decider of what would actually be polled in the first place. Long-requested changes took forever to be polled (if ever polled at all) if the OSRS Team didn’t want to deal with that particular problem or didn’t like that idea. Similarly, the Team essentially had desk jobs with a noose kept around their neck – they could perform almost nothing without the players, their slave masters, seeing, criticizing, and tearing out every inch of developmental or visionary freedom they had. Ever hear about the controversy of Erin the duck? Take a look at the wiki or do a search through the subreddit history. It’s pretty fantastic, and a good window into the minds of the early OSRS playerbase.
But as the years have gone on, the perspective of the players has shifted. There is now a much healthier and more trusting relationship between them and the Team, much more flexibility in what the players allow the Team to handle, and a much greater tolerance and even love of change.
But the challenges of democracy haven’t just fallen away. Everyone having the right to vote is a fundamental tenet of the democratic system, but unfortunately that also means that everyone has the right to vote. For OSRS, that means that every member, whether it’s their first day in game, their ten thousandth hour played, those who have no idea about what the poll’s about, those who haven’t read a single quest (the worst group), those who RWT and bot, those who scam and lure, and every professional armchair developer like myself get to vote. In short, no one will ever be perfectly informed on every aspect of the game, or at least know when to skip when they should. Similarly, people will almost never vote in favour of making their game harder, even at the cost of game integrity, or at least not enough people would vote in such a fashion to reach a 75% majority.
These issues are well recognized. The adoption of the controversial “integrity updates” was Jagex’s solution to these problems. In this way, Jagex has become even more like a government to the players. The average citizen of a democratic country cannot and will not make major decisions that favour everyone around themselves if it comes at a personal cost. Rather, that’s one of the major roles of a government: to make decisions for changes for the common good that an individual can’t or won’t make on their own. No one’s going to willingly hand over cash to help repave a road on the opposite side of the city – that’s why taxes are a necessary evil. It’s easy to see that the players don’t always know what’s best for their game and sometimes need to rely on that parent to decide for them, even if it results in some personal loss.
But players still generally like the polls, and Jagex still appears to respect them for the most part. Being the government of the game, Jagex could very well choose to ignore them, but would risk the loss of their citizens to other lands. And there are some very strong reasons to keep them: the players still like having at least one hand on the wheel when it comes to new content or ideas. Also, it acts as a nice veto card should Jagex try to push RS3’s abusive tactics on OSRS and therefore prevent such potential damage.
But now we come to the topic of today: the introduction of a new skill. Essentially, a new skill must pass a poll in order to enter the game. While it’s easy to say, “If a skill idea is good enough, it’ll pass the threshold,” that’s not entirely true. The only skill that could really pass the 75% mark is not necessarily a well-designed skill, but rather a crowd-pleasing skill. While the two aren’t mutually exclusive, the latter is far easier to make than the former. Take Dungeoneering: if you were to poll it today as an exact replica of RS2’s version, it would likely be the highest scoring skill yet, perhaps even passing, despite every criticism that’s been previously emphasized describing why it has no respect for the current definition of “skill.” Furthermore, a crowd-pleasing skill can easily fall prey to deindividualization of vision and result in a bland “studio skill” (in the same vein as a “studio film”), one that feels manufactured by a board of soulless machines rather than a director’s unique creation. This draws straight back to the afore-mentioned issues with democracy: that people A) don’t always understand what they’re voting for or against, and B) people will never vote for something that makes their game tougher or results in no benefit to oneself. Again, these were not issues in the old days of RS2, but are the problems we face with our modern standards and decision making systems.
The reality that must be faced is that the polling system is not an engine of creation nor is it a means of constructive feedback – it’s a system of judgement, binary and oversimplified in its methodology. It’s easy to interact with and requires no more than 10 seconds of a player’s time, a mere mindless moment, to decide the fate of an idea made by an individual or team, regardless of their deep or shallow knowledge of game mechanics, strong or weak vision of design philosophy, great or terrible understanding of the game’s history, and their awareness of blindness towards the modern community. It’s a system which disproportionately boils down the quality of discussion that is necessitated by a skill, which gives it the same significance as the question “Should we allow players to recolour the Rocky pet by feeding it berries?” with the only available answers being a dualistic “This idea is perfect and should be implemented exactly as outlined” or “This idea is terrible and should never be spoken of again.”
So what do you do? Let Jagex throw in whatever they want? Reduce the threshold, or reduce it just for skills? Make a poll that lists a bunch of skills and forces the players to choose one of them to enter the game? Simply poll the question, “Should we have a new skill?” then let Jagex decide what it is? Put more options on the scale of “yes” to “no” and weigh each appropriately? All these options sound distasteful because there are obvious weaknesses to each. But that is the Third Great Irony we face: an immense desire for a new skill, but no realistic means to ever get one.

6-0 - Conclusion

I can only imagine that if you’ve truly read everything up to this point, it’s taken you through quite the rollercoaster. We’ve walked through the history of OSRS skill attempts, unconstructive arguments, various aspects of modern skill design philosophy, and the OSRS Team and skill design process. When you take it all together, it’s easy to get overwhelmed by all the thought that needs to go into a modern skill and all the issues that might prevent its success. Complexity, naming conventions, categorizations, integration, rewards and motivations, bankstanding and buyables, the difficulties of skill bloat, balancing, and skill endgames, aesthetics, the design process, public presentation, development effort, democracy and polling - these are the challenges of designing and introducing modern skills. To have to cope with it all is draining and maybe even impossible, and therefore it begs the question: is trying to get a new skill even worth it?
Maybe.
Thanks for reading.
Tl;dr: Designing a modern skill requires acknowledging the vast history of Runescape, understanding why players make certain criticisms and what exactly they’re saying in terms of game mechanics, before finally developing solutions. Only then can you subject your ideas to a polling system that is built to oversimplify them.
submitted by ScreteMonge to 2007scape [link] [comments]

Greed is Subtle

The morning alarm woke up Ghen. With an annoyed sigh, he stretched out his arm and silenced the foul-sounding chirps. Slowly sitting up in bed, he let out a deep yawn and got to his feet.
Running a couple of chitinous fingers along his antennae to stimulate them to life, he made his bed and then went to his closet. Today was a work day, so he needed his suit. Once the pants were on, he stretched out his wings so that he could button up the shirt, then relaxing them once all the buttons were secured.
Dressing for the day was done, now for the morning meal. Entering his kitchen, he took out the chilled leftovers of the evening meal last night and popped it into the radiator, first defrosting and then slightly cooking it.
During that process, he also fished out a ceramic cup and placed it in his brewer, serving himself some synthesized caffeine. His idle thought led him to being amused that, when eaten directly off a plant, it has a concentration that could kill him three times over. But after going through some refinement and roasting, all it does is make him hyper.
Once the meal was put together, his plate of heated leftovers and a cup of almost-piping-hot cup of Xia's, he took his time to enjoy it. His communicator vibrated. When he looked, he found it was from his boss.
"Hello?" Ghen answered.
"Ghen, the meeting's been moved up to a few minutes from now." His boss, Xkik, announced. "Apparently higher up has something important they want to say. We have a terminal ready for you, I'll message the login details."
"Wha-, what's so important?" Ghen asked in bewilderment. "Did a water line rupture or something?"
"No, nothing like that." Xkik replied with a slight chuckle. "It's actually about the rumors we've been hearing. That human corporation wanting to acquire us? That's what they're talking about."
Ghen could feel everything inside his thorax drop to the floor. "That must mean it's true then, right? Did we get sold off by the Queen to this company then?"
"Show up to the meeting and you'll get your answer." Xkik said simply. When he finished, Ghen got the notification on his communicator. There's the login details, allowing him to remotely attend the meeting. "They're about to start, hurry up."
Once Xkik disconnected, Ghen worked fast to login and set up the remote viewing. Once everything was done, his screen started transmitting the meeting room. It was already packed. And off by the main board, he saw his answer. There was a human, resting against the wall on his two legs. Standing right in the center of everyone's view was the coordinator, Tizx, watching the clock periodically.
As soon as the meeting's start time was reached, the coordinator began. "Alright everyone. I realize that this was rather short notice, so I want to say how appreciative I am that you made it. Now then, let's just get right to it. For some time now, many of you have been hearing rumors that a human corporation has been interested in us. Why? We never really knew. We're just an organization responsible for finding, extracting and providing water to the colony here all under the direction of the Queen herself. Well, as of now, I have the answer for you. Why don't I let Ryan say that?"
Stepping back, Tizx motioned for the human, Ryan, to take over. With a nod, Ryan practically bounced over and then took the position. "Good morning to you all. I hope my Zazk is passable, heh. Anyways, the answer to those rumors, is yes. Terran Galactic Company is indeed interested in you all. Which now leads to me. I'm here to announce that, effective yesterday evening, this water company is now a subsidiary of Terran Galactic Company, under the name of Zilia Water Delivery."
Many other sub-coordinators broke into hushed conversation, no doubt speaking their thoughts with each other about this move. Ghen could only wonder if this was even a good thing. What will the humans do? Will he still have his job? Will he have to learn how to deal with the ruthless humans?
"Now, I am well aware this is quite the...uh, change." Ryan continued. "That's why I'm happy to inform you that, no, nothing negative or detrimental will happen to you. You just have new people to answer to. Operations will continue as normal, everybody here will still keep their jobs. The only real change any of you will personally experience is that Coordinator Tizx here will now report to someone else. On behalf of the Terran Galactic Company, we are extremely excited and are looking forward to working with you all. Thank you for your time."
A week later.
At least Ryan wasn't lying. After the initial shock wore off, things went back as they normally did. There were no terminations, no reductions in annual pay or anything. Nothing really changed. At least until this new meeting was called. Ghen was at the worksite this time, so he took his seat and watched as, once again, Ryan led the meeting.
"Hello again, everyone!" He said cheerfully, his Zazk noticeably improved. "I hope I didn't end up looking like a liar, right? Everything's still normal, all that?"
All the zazk in the room confirmed, providing comments to their pleasant surprise as well as lingering thoughts.
"Awesome! Awesome." Ryan said jubilantly, his fleshy mouth revealing his bone-white teeth. "Now then, you're probably wondering why I'm here again, right? Well, I got another fantastic piece of news for you all! Two, actually. I'll start with the first: Zilia Water Delivery has just completed its IPO. The company is now publicly traded!"
Ghen and the others voiced their confusion, having no idea what in the name of the Queen Ryan was talking about. What was Ryan talking about? What's an IPO? And why exactly is being publicly traded such a significant thing?
"Oh, you guys don't know any of that?" Ryan asked in surprised confusion. After everybody confirmed, he let out a quick huff as he began his explanation. "Well, to begin, IPO is short for Initial Public Offering. Basically what that means is that, before today, Zilia was privately held. Only certain individuals could buy and sell shares here. But now that we're public? Literally anyone can buy and sell shares in the company, hence us being publicly traded."
"Uh, what's a share?" Ghen asked, still completely lost.
"Oh, boy..." Ryan muttered under his breath before returning to his peppy image. "To simply put it, a share is short for having a share of ownership in a company. When you buy a share, you're buying a piece of ownership, and when you sell, you're selling that amount."
"So wait...if someone buys a share, they're a co-owner then?" One of the other team coordinators asked.
"If they get enough, yeah." Ryan nodded. "You need a lot though, and that really depends on the company. If I had to give an answer though? I'd say usually you need to have a lot more shares than a lot of people combined to be officially a co-owner, but we call that being a majority shareholder."
"And how do we do that?" Ghen asked, now growing curious but still not understanding why such a concept exists.
"Simple. Buy shares." Ryan said simply. "And that leads into the second piece of awesome news. Zilia's corporate has a product in mind, a premium-package of water delivery. Instead of the usual water that you pump out, filter and ensure its potable before delivery, with the premium package, not only will you get that, but you'll also get all of the required nutrients and vitamins the zazk body requires! And they feel you guys have the best expertise and understanding to pull it off! So, here's what we're offering as a good-faith bonus: A 25% increase to your annual salary as well as being given stock options."
Ghen wasn't sure about the second part, but the salary definitely got his attention, as well as everyone else's. Although his job was considered to have a good pay, Ghen isn't going to say no to a higher salary. In fact, he's been focusing his work on getting a promotion so he can come home with even more credits in pocket.
"What do you mean by stock options?" Ghen asked after some time.
Ryan let out that smile again, the one that revealed his teeth. "If you choose to transfer over to the new group, you'll be provided 50,000 shares in Zilia itself. Why's that awesome? Let me walk you through it. Right now, our last closing price per share was 3.02 credits. And if you have 50,000 shares during that time, you're sitting on 151,000 credits, if you cash it out immediately."
"And why shouldn't we?" One of the coordinators demanded in an ambiguous tone.
"Because the price per share changes a lot." Ryan explained promptly. "When we got done with the IPO? It closed at 2.73 a share. Right now? My money's on the closing price being 2.99 a share. However, we are extremely confident in this premium package being successful. If it does? Well, my bet is that the share price will skyrocket to 3.12 a share. If you hold those shares and the price gets to what my bet was? You'll instead get 156,000 credits. Just by holding onto them, you just made an additional 5,000 credits!"
"And what if we have more shares?" Ghen questioned, now getting excited at the prospect of free money.
"Even more money!" Ryan laughed a bit. "And don't forget about dividends, but that's for another time. The premium group is gearing up right now, we just need the workforce. If any of you wants in, I'll be back tomorrow with all the forms needed to make it official. Take the day and tonight to think it over, yeah?"
Everything else melted into a blur. Ghen was practically on autopilot that whole day. Was this the secret to the humans' incredibly massive economy? How so many of them have amassed so much money out of nowhere? All you had to do was just buy this share out of a company and you get more money without even working?
As soon as he got home, Ghen knew what he was going to do during the night. After feverishly looking through the galnet, now having the human race connected to it, he looked and gathered up as many books that were translated into zazk as he could find, all talking about the human economic system. The last time he undertook such an intensive study was during his primary education phase.
And during his search, he even found forums on the galnet that were completely dedicated to the human's economy. All of them talking about strategies on what company, or stock, to pick. How to analyze a company's performance to determine if it was worth the money, or it had potential to grow over time. And that was when he discovered the humans found another method to the extremely simple buying and selling process. There were humans and some other immigrated aliens who made five times what Ghen could receive over a simple month just by watching the share prices during trading hours, and then buying and selling them at the proper times.
Ghen's mind was just absolutely flabbergasted. He thought it was just some strange concept only aliens could make, but no, not with the humans. They've practically made their economy into an art or a science. No, not even their economy. Everything. If humans can see a way to make money off of it, they'll do it. And if there isn't, they'll look for a way.
Healthcare was monetized. Galnet services, transportation, shopping at the store, they even made all of their utilities into profit-oriented companies.
And it was there that Ghen paused, the realization slamming into him. Everything was monetized. Which means, if you don't have the money for it, you're not getting it. Right? Are the humans truly that ruthless? So obsessed with making money? To the point that they're willing to deprive their own people of the absolute necessities if it's a source of credits?
Ghen let out a scoff. There's no way. Nobody is that cruel and callous. He's never been to the United Nations. He can't rely on what a bunch of random people on the galnet says. He decided that from here on out, he'll only go as far as saying that humans are a little obsessed with credits, nothing more.
...
There he was. Ryan, sitting in the office provided to him. And there was a rather large line leading to him. Looks like word got around. Although, the line wasn't as large as he expected it to be. Maybe the others thought it was just a ruse? That there's no such thing as making free money by spending it on such a made-up concept?
Ghen only knows that, if it is a ruse, it's an extremely elaborate one, where all of the humans are in on it. And he believes that's just extremely ridiculous. At the end, if he's unsure, he'll just take the transfer for the very real increase in his very real salary. And although he spent a very good chunk of the night reading up on how humans do things, he's still going to play it smart. He'll leave his 50,000 shares alone and see where it goes from there.
"Good morning sir." Ryan greeted warmly once Ghen took his seat. "Now, name please?"
"Ghen." He answered, barely keeping his nerves down.
"Alright...and what's your position at this location?" Ryan questioned after scribbling on his form.
"I monitor the pumping stations near the extraction sites." Ghen explained, staying on point. "To be more specific, I check to see if they're in need of maintenance, as well as reading the flow rate that's determined by the calculators installed there. If there's too little for what's needed, I pump out more. And if there's too much, I pull it back a little."
"Nice...and how long have you been doing it for?" Ryan complimented with a nod.
"As of tomorrow, ten years." Ghen replied, voice quickly changing to minor awe once he realized that fact.
"Excellent. Do you have anyone in mind you'd like to replace you here?" Ryan questioned after another scribble. "If you don't have anyone, you're free to say so."
Ghen took a moment to think it over. A bunch of names went through his mind, but one stuck with him. "Tilik. He's just been accepted here, but he's learned quickly. Very attentive and he always catches something subtle. I think he'll do really well in my position, even better actually."
"Tilik, really?" Ryan questioned with a little shock, going through his completed forms. Ghen felt a short sense of panic in him. Did something happen, or was Tilik actually transferring? His answer didn't take long to reveal itself. "Right, Tilik was actually one of the first people to want to transfer here. He's actually requested to be part of the testing teams specifically. Do you have a second choice?"
"Um...no, actually." Ghen replied, feeling a little ashamed. "Tilik was my only choice, to be honest."
"Hey, don't worry." Ryan said assuringly with his hands raised. "Nothing wrong with that. Sometimes, there's just nobody up to snuff, right? 'Kay, so, last question. Is there anything specific you'd like to do when given the transfer?"
"If you need someone monitoring new pumps, I'd be happy to do that." Ghen stated.
"So basically same job but with better payoff, am I right?" Ryan grinned. "I hear you. Sometimes, we're just not paid enough for what we're doing. I know I think that sometimes. Uh, our secret, yeah?"
"Yeah, our secret." Ghen nodded, thinking it'd be better to have friendly relations with the human, just in case.
"Awesome. Back on topic, that's it." Ryan announced, placing the form on his pile. "We'll give you a call when you're accepted."
"Oh, uh, that's it?" Ghen questioned with a shrug in shocked surprise.
"What, expecting a question like, why do you want to transfer?" Ryan chuckled a bit as he leaned in his seat. "You can bullshit all you want, but we both know the answer. Sweet money and stock options. Not saying that's a bad answer of course, just that it's pretty obvious."
"I suppose it is." Ghen commented, realizing the point. "Also, you mentioned this...dividend? Is that for Zilia shares?"
Ryan laughed a little bit before nodding. "Yep, announced before I came here. About 0.43 per share. Want to know why that's awesome? Instead of waiting for the proper price to cash out your shares, now? The company pays you for each share you hold."
"A...Are you serious?" Ghen demanded, flabbergasted.
Ryan nodded with his now-trademark grin. "Dead serious. If you get the transfer, and get those 50,000 shares? A little head math...right, if you hold onto those, in addition to your salary, you'll now annually be paid 21,500 credits, if you keep it at 50,000 shares. Only you can decide to sell or buy shares."
Ghen just stood there silent and motionless, no idea of whether to believe it or not, to which Ryan just laughed. Once he walked out of the room, he managed to snap back to reality. Again, just focus on the very real pay-raise. He'll deal with the other parts later.
After he returned to his spot, he spotted Tizx approaching by his desk. The coordinator seems to be as casual as always.
"I saw you in that line a bit ago, Ghen." He said as he leaned on the desk. "Guess you're really taking that human's word?"
"I mean, I don't know about all this share business or what not." Ghen began with a shrug, his tone sounding a little defensive. "But I mean, having a bigger salary? Course I'm going for it when I can. And if all this magic credits turn out to be real? You realize we can live like the royal servants, right? Get the best cars, the nicest food and all that?"
"I'd be very careful, Ghen." Tizx warned in a sudden shift in tone. "Don't trust those humans. The way they just...obsess over money? Come up with more and more insane ways of getting credits? I don't know, it just makes my wings twitch."
"You think this is a bad idea?" Ghen asked with a little surprise at the change-in-demeanor.
"I think you should be careful, with the humans, and with what you're saying." Tizx replied, straightening his posture. "I wouldn't put it past those Earthmen to backstab you if it gets them a few more credits. And we all know how the royal servants get if any of us lowly commoners start thinking we can break into their circle."
"I hear you, I'll be on my guard, promise." Ghen stated with a nod. With a confirming nod of his own, Tizx returned back to his duty, walking past Ghen's desk.
Several weeks later.
Everything became so much better. Ghen got the transfer. He didn't need to relocate to a new residence either. And after he was walked through into learning how to manage his stock account, and seeing that new form of payment in his hands, he already felt as though he made the best decision. But it was only when he decided to take those shares more seriously that he became privy to what he was given. After receiving the dividend payment, and actually seeing it was real, valid credits after transferring it to his main bank account, all he could describe was the most powerful high he ever felt.
While his first thoughts were to buy himself a royalty-class car, some nicer furnishings for his home, or even a better home entirely, he ended up going the smarter route.
After going back to his stock account, he discovered that Zilia's shares rose to about 3.22 credits in price. Knowing that this was the easiest money he could ever make, he took all of his dividend earnings and bought more shares in Zilia, bringing him to owning 56,891.
And from his new regional coordinator, a human named Dylan, tomorrow is the grand release of the premium package. For just a monthly rate of 14.99 credits, the tap water will now include a sizeable portion of all nutrients and vitamins required in the zazk physiology. Still, Ghen has to admit. He's not entirely sure why anybody would want such a thing, if they'd even go for it. But, as long as he's practically swimming in easy credits, he won't pay much attention to it.
And just like when he was intensively studying the basics of how the human economy worked, he barely got any sleep. His mind was constantly thinking about the things he would buy. Or rather, what other stocks to put his credits into. Even now he can still hardly believe it. Just spend your money on some, make-believe thing and, if you wait long enough and picked the right stock, you'll get more than you spent back?
His mind even wandered onto what human colonies, or even their homeworld, Earth, was like. If everybody was making so much money, what kind of things would they offer? What kind of ridiculous service or product or item can you get? He's even debating on joining some forum and just asking around. Explain how he's new to how humans do things and was wondering what he should expect if he's successful.
By the time he felt like he can go to sleep, the binary-stars of the system were rising from the horizon. After getting out of his bed and changing to clean clothes, his mind returned onto what-ifs.
What if he bought better clothes? He's had his eye on that human brand of luxury clothes, Tessuti di Venezia, that's been all the rage amongst the royal servants. Or maybe he can go on vacation and just check out Earth for real?
It was a short ride to his workplace from his home. After getting stuff his stuff and preparing to walk through the doors, he heard the roar of a car grow louder. When he looked, he saw the sleekest and quite possibly the coolest looking car he's ever seen. Each time the engine revved it would startle him, both from how harsh it sounded as well as just how intense it sounded. And after it parked, he saw the doors pop out and then slide along the body back. And there, he saw Tilik, the seat literally turning and extending out a bit before he got off.
As soon as he saw Ghen staring, he struck a rather prideful pose after putting on his lab coat and then sauntered over to Ghen.
"What do you think?" Tilik said, without any doubt inviting praise or compliments.
"D...Did you actually buy that?" Ghen asked, unable to tear his eyes away from the car.
"You're Queens-damn right I did!" Tilik laughed happily. "Thing takes off like a starship, has temperature-controlled seating, all-in-one center console, barely any bouncing on rough roads. Hoof, best decision I've ever made!"
"How much did that thing cost?" Ghen asked after letting out an incredulous laugh.
"Five million credits." Tilik replied, earning an absolutely shocked stare from Ghen. "And thanks to the incredible salary I have, in addition to all these shares and dividends, I'll pay back the credits I borrowed in no time!"
Ghen needed a few moments before he could speak again. "All I've been doing is buying more shares."
Tilik laughed and then patted the now-envious monitor's back. "Smart man. I got a little carried away, yeah, but not anymore. Any spending credits I got, going right back to investing. That's what it's called right, investing?"
"Yeah, it is." Ghen nodded, feeling a fire light up in his thorax. "And also? Today's the day that the premium water thing is being released. Here's hoping it starts out well, right?"
"Oh it will, trust me." Tilik chuckled as they both began making their way inside the workplace. "Lots of research, lots of study. By the Queen, so much of it...it'll make your head spin."
And after hearing that, Ghen had a moment of realization. "Hey, Tilik? How did you get such a nice position anyways? Weren't you just studying under me before the humans came along?"
Tilik let out a sigh after opening the door. "I'll be honest, I never wanted your job. Not because it's boring or terrible, just...I didn't suffer so many sleepless nights in the science academy just to be a glorified button pusher. This is what I've always wanted. Doing science, solving problems rather than just applying the solution, you know?"
"Wait, you got an academic certificate?" Ghen questioned, completely floored. "How did you end up beneath me then? I should've been answering to you!"
"Simple." Tilik gave a heavier sigh. "A royal servant was asking for the same job I was. Take a guess at who got it."
"Ouch. Good thing the humans came along when they did, yeah?" Ghen was taken aback. He never heard anything about a servant taking a job at his place. "Looks like you're proving yourself to be well suited."
"By the Queen, of course I am." Tilik nodded. "Like I said, I nearly broke my wings through so many nights, got certified top of my class, all just to get pushed to the dirt because someone who was born into a particular family wanted the same thing I did? I know I'm smarter than any of those empty-skull servants back in the Center. I know that, whatever, uh...corporate? Yeah, whatever corporate wants out of science, I will xeek give it to them."
"Well, let me know how things go in the lab." Ghen said, admiring his drive as they neared the main office floor. "Because this is where the button pusher needs to go."
Tilik let out a laugh as he nodded. "Hey, how about we meet up at Queen's Fine Eatery tonight. I'll pay, yeah?"
Ghen, at first, wanted to admonish him for choosing such an outrageously expensive place to go. But he quickly realized that, he truly is good for it, thanks to the humans. "Well, hey, if you're paying for it."
...
It was a fantastic opening. After being told what news sites to keep in mind for stocks, he first heard it from Dylan, and then got more detail on Business Today. There was such a massive demand right from the start that Zilia needs to increase extraction just to meet it. But what really got his attention was the effect it had. Zilia Water Delivery's share price just blasted off. After seemingly holding steady at about 3.15, by the time he got home and logged onto his account, it already reached 7.04 a share. The calculator on his account told him that he got a value-gain of 54.26%.
Never in his entire life had he felt such...joy. With all of the shares he currently has? He's sitting at 400,512.64 credits. He knows that it is woefully pathetic compared to what the royal servants have just in their pockets, but the fact that he has such money, just by owning some intangible concept? Why even work at Zilia? Why doesn't he just sit at home, figure out what companies to invest in and make his money that way?
What's even the point in working a real job, getting a pathetic pay when you can just take the money you have, determine where to spend it, and get triple back? All just sitting on your wings at home, researching?
He was so wrapped up in his excited high that he completely forgot he was going to meet Tilik at Queen's. After quickly and haphazardly putting on his nicer clothes, he got to the place only a few minutes late.
Tilik was there by the guide, no doubt having been waiting for him. As soon as he strode up, Tilik's wings stiffned out some. No doubt he must've seen the numbers as well.
"I can see your wings, Ghen." Tilik began with an excited chuckle. "Made some serious credits?"
Ghen let out an incredulous scoff, struggling to find the words for a moment. "Incredible. All I'm going to say."
"Likewise." Tilik chortled some before nodding to the table guide. "All here. Table please?"
"Right this way, sir." The guide said politely. It was a short walk, travelling between round tables. The vast majority were populated by zazk, but Ghen was surprised at seeing a few humans here as well. No doubt corporate workers checking out the local food. He did spot them having bowls filled with some kind of mass. Some were brown, others white with what looks to be black specks on them.
They arrived at their table. A rather nice one, affording a view out the windows into the busy colony streets. Once Tilik and Ghen settled in, the guide handed out the menus.
"May I suggest our rather popular option for tonight?" The guide began. "Human ice-cream. Ingredients sourced from Earth itself. Very cold, but incredibly sweet, and coming in many flavors. The most popular amongst us is called vanilla-bean. The vanilla itself soaks in the cream for much of the process, and then the innards sprinkled on top of it near the end. Rumor has it that the Queen herself has demanded personal shipments of such a treat straight from the home of vanilla, an island on Earth named Madagascar."
Ghen didn't even spare a single thought. "Vanilla bean ice cream then, please."
"Same." Tilik seconded when the guide glanced to him. With a slight bow, the guide proceeded to ferry their orders to the kitchen. Thankfully it was just a short wait before the guide returned, carrying a large plate containing bowls of ice cream. Ghen could feel the saliva on his mandibles as the bowl was placed before them. He could just feel the cold air around that glistening mass of sugary goodness. The white snow decorated with the black dots of vanilla bean.
Once the guide left them, Tilik and Ghen both dived in at the same time. As soon as the ice cream entered his mouth, touched his tongue, he exploded in incomprehensible bliss. The sweetness, the smooth and creamy mass, even the taste of vanilla he wasn't sure about was just absolutely delightful. It was so overwhelming that his entire body limped, slumping in his seat as he was forced to ride on the surging tide of joy and happiness sweeping over him.
Tilik was no different. He too was taken completely by the effects of the ice cream, his wings fluttering some against the seat. Ghen could hear some noise. It was the humans they passed by. They were chuckling, grinning, and glancing over at them discreetly. Unlike the two zazk, the humans seemingly just enjoyed the ice cream as if it was just another nice dessert to them. Or perhaps they couldn't allow themselves to succumb to the high?
And as soon as the wave of indescribable bliss and happiness subsided, Ghen knew. He just knew. This was the life. He wanted this. The ice cream was just the beginning. So many things denied because he didn't have the credits, or worse, not the blood. Because he was just a drone in the great Collective, even if he had the credits, he wasn't allowed because of what caste he was born in. That fire that sparked in him when he saw Tilik's new car? It exploded into a raging firestorm.
And when looking into Tilik's eyes, Ghen could see the same. He was on the same page as Ghen was. Both of them were sold. They have the credits. And the humans? If you can pay for it, they'll never discriminate. All they cared about is if you have the money.
And by the Queen, Ghen and Tilik will endeavor to amass as much credits as physically possible.
The rest of the night faded into a blur. A blur that evokes only one thing. Bliss. It was only when he walked through the door of his pathetic hut that Ghen's mind snapped back to focus. His mandibles felt sticky. And he felt a weight in his stomach. How much ice cream did he eat? Whatever it was, he ate such volume that the lower-section of his throax extended and rounded out, visible even under his shirt. He felt something odd in his pocket. It was a receipt. 43,000 credits for ten bowls of vanilla bean ice cream. Was that ten bowls for both of them? Or individually? Ghen didn't care. He's good for it.
Returning back to his calculator, he acted upon the decision that he had made at that eatery. He's acquiring as many books about investing and stock trading as he could find, frequent and study all the discussions and arguments presented by other like-minded individuals such as he, all to ensure he can live the good life. And he had a very good feeling Tilik was doing the exact same thing.
Well, first, the gurgling in his stomach, as well as the feeling of something rising demanded his attention. Looks like he'll need to take the night off to let his stomach get back to normal.
Three Years Later.
Ghen looked out beyond the horizon, seeing the colony that he grew up in. On the far side was where his old house was. With only a simple robe on, made from the finest silk from Earth's nation-state of China, he relaxed in his seat.
It was a long road. Stockpiling credits from pre-existing investments and from subsequent pays, he and Tilik made it. From having only half a million in assets and cash, now transformed to over eight-hundred million. And now, his call contracts on American Interstellar? They've just announced a breakthrough in their next generation of warp drives, reducing the speed coefficient even further, resulting in far faster travel. And with that, their stock price climbed sharply.
Another hundred million credits in the bank. Soon, very soon, he and Tilik are about to become the galaxy's first zazk billionares. But that's not enough. There are many humans who are billionares. Only those he can count on one hand are considered trillionares. He's going to break into that circle. He and Tilik.
Looking beyond the colony, he saw the abandoned building of the workplace he transferred to when the humans arrived. Turns out, the reason for such a high demand was that the humans also slipped in sugar to the tap water. As soon as that broke, many influential royal servants demanded investigations and outright banning of Terran Galactic Company's influence over the former government division. Zilia's stock price plummeted. But thanks to an advance tip from his human coordinator, Dylan, he and Tilik made a put contract. And that's where they struck gold, as the human saying goes.
Dylan warned that if they were citizens of the United Nations, they'd be investigated and convicted for insider trading. But, since they weren't, and the Collective were only just introduced to capitalism, there's no risk at all. Now the colony is going through a withdrawal phase, Zilia has been dissolved and reformed back as a government division and are currently at work re-establishing the standard, plain water delivery.
"Well, shit." Tilik muttered as he walked up to Ghen's side, taking well to human speech. "Looks like you win. American Interstellar's announcement really was a good thing. There goes a million credits. Ah well, the Royal Shipyards will make it back for me soon."
"Oh? Did they just go corporate?" Ghen asked curiously, glancing to Tilik.
"Hell yeah they did." Tilik chuckled, sitting down. "Queen and her retard servants fought it hard, but Royal Shipyards is now officially a human-style corporation. And, to a surprise to all the xenophobes in the galaxy, they're already being offered contracts for ship production. That'll raise the stock price pretty good."
"What's that human word...?" Ghen muttered, already having a reply in mind. "Dick? Yeah, calls or suck my dick, Tilik."
Tilik roared in laughter. "Already made them. Forty credits a share by this day next month."
"I have half a mind to go thirty." Ghen chuckled. "Either way, until then, I heard from Dylan that he knows a guy who knows several prime human women who happen to be into zazk."
"You're interested in women?" Tilik said as his wings fluttered. "With how often you tell me to suck you off, I'd have thought differently."
"Oh, I always thought it was you who was into men." Ghen responded dryly. "Just wanted to be a good friend, you know? Considering how you never seem to make it past, Hey sweet thing, I'm rich you know."
"Oh, go fuck yourself." Tilik countered with a little laugh. After he stopped, wings stiffened, he looked to Ghen. "So, know any royal servants we can put the squeeze on for more revenue streams?"
"I got just the one." Ghen nodded, sitting up. "Fzik. He's been fighting to control the ice cream trade. Worried it's a corrupting influence. Got done talking with the human CEO of Nestle earlier. If we clear the way, he'll know how to squeeze a little more gains in stock price when he makes the announcement."
Tilik's wings stiffened even more, signaling his approval. "Alright, time to throw some credits around, yeah?"
AN: Sorry for the period of no updates. College is starting up, lots of stuff to clear and work out. Not sure why but I just got a bug up my butt about incorporating money and the stock market into a short. Here it is. Sorry if it seems abrupt, character limit fast approaching. Let me know how you guys think about it!
submitted by SynthoStellar to HFY [link] [comments]

The classic WSB story - lost it all.

Going to keep this simple. EDIT: this isn’t simple and I should write a short story on this.
I am generally risk averse. I hate losing $100 at the casino, I hate paying extra for guac at chipotles, I will return something or price match an item for a few dollars of savings. I am generally frugal.
But, I somehow had no issues losing 10k in options...
How I started
I remember my first trades like they were yesterday. I was trading the first hydrogen run-up in 2014 (FCEL, BLDP, PLUG) and made a few hundred dollars over a couple weeks.
I quickly progressed to penny stocks / biotech binary events and general stock market gambling mid-2014. I was making a few % here and there but the trend was down in total account value. I was the king of buying the peak in run-ups. I managed to make it out of 2014 close to break-even to slightly down.
WSB Era
March 2015 was my first option trade. It was an AXP - American Express - monthly option trade. I saw one of the regular option traders/services post a block of 10,000 calls that had been bought for 1.3 and I followed the trade with 10 call options for a total of $1300.
I woke up the next day to an analyst upgrade on AXP and was up 50% on my position. I was addicted! I day-dreamed for days about my AXP over night success. I think around that time there was some sort of Buffet buyout of Heinz and an option trade that was up a ridiculous amount of %%%. I wanted to hit it BIG.
I came up with the idea that all I needed to reach my goal was a few 100% over night gains/ 1k>2k>4k>8k> etc. I convinced myself that I would have no problems being patient for the exact criteria that I had set and worked on some other trades.
Remember, the first win is always free.
I was trading options pretty regularly from March 2015 until August 2016. During my best week I was up 20k and could feel the milli within reach. I can remember the exact option trade (HTZ) and I was trading weeklies on it.
For those who have been in the market long enough, you will remember the huge drawdown of August 2015.
I lost half my account value on QCOM calls (100 of them) that I followed at the beginning of July and never materialized. I watched them eventually go to 0. It was another 10,000 block that was probably a hedge or sold.
In August 2015 there were some issues with China and all of us woke up to stocks gapping down huge. Unfortunately my idea of buying far dated calls during the following days/weeks after the crash went sideways. I quickly learned that an increase in volatility causes a rise in option prices and I was paying a premium for calls that were going to lose value very quickly (the infamous IV crush).
I kept trading options into the end of 2015 and managed to maintain my account value positive but the trading fees for the year amounted to $30,000+. My broker was loving it.
I tried all the services, all the strategies. I created rules for my option plays: 1. No earnings 2. Only follow the big buys at a discount (10,000 blocks or more). 3. No weekly options 4. Take profit right away 5. Take losses quickly 6. etc.
I had a whole note book of option plays that I was writing down and following. I was paying for option services that all of you know about - remember, they make money on the services and not trading.
I even figured out a loop-hole with my broker: if I didn’t have enough money in my account, I could change my ask price to .01 and then change it to market buy and I would only need to accept a warning ⚠️ for the order to go through. I was able to day trade the option and make money, who cares if I didnt have enough? After a few months of this, I got a call from my broker that told me to stop and that I would be suspended if I continued with this.
By the way, I was always able to satisfy the debit on the account - so it wasn’t an issue of lack of funds.
Lost it all. Started taking money from lines of credits, every penny that I earned and losing it quicker and quicker.
I was a full on gambler but I was convinced that 8 trades would offset all the losses. I kept getting drawn in to the idea that I could hit a homerun and make it out a hero.
I eventually hit rock bottom on some weekly expiring FSLR options that I bought hours before expiration and said to myself - what the f are you doing? I resolved to invest for the long term and stop throwing tendies away.
The feeling was reinforced during the birth of my first born and I thought - what a loser this kid will think of me if he knew how much I was gambling and wasting my life. It was a really powerful moment looking at my kid and reflecting on this idea.
I decided at that point I was going to save every penny I had and invest it on new issues with potential.
Fall 2016
TTD, COUP and NTNX IPO ‘ed I decided I was going to throw every dollar at these and did so for the next few months. I eventually started using margin (up to 215%) and buying these for the next 6 months. They paid out and managed to make it over 100k within the year.
The first 100k was hard but once I crossed it, I never fell below this magic number.
2017 - I did some day trading but it was mostly obsessing over the above issues. I did gamble on a few options here and there but never more than 1k.
2018 - SFIX was my big winner, I bought a gap up in June 2018 and my combined account value had crossed 400k by August 2018. I was really struggling at crossing the 500k account value and experienced 3 x 30-40% drawdowns over the next 2 years before I finally crossed the 500k barrier and have never looked back.
I still made some mistakes over the next few months - AKAO & GSUM come to mind. Both of these resulted in 20k+ losses. Fortunately my winners were much bigger than my losers.
I thought about giving up and moving to index funds - but i was doing well - just experiencing large drawdowns because of leverage.
2019 big winners were CRON SWAV STNE.
2017 / 2018 / 2019 all had six digit capital gains on my tax returns.
At the beginning of 2020 I was still day trading on margin (180-220%) and got a call from my broker that they were tightening up my margin as my account was analyzed by the risk department and deemed too risky. Believe it or not this was right before the covid crash. I brought my margin down to 100-110% of account value and even though the drawdown from covid hit hard, I wasn’t wiped out.
I stayed the course and bought FSLY / RH during the big march drawdown and this resulted in some nice gains over the next few months.
I am constantly changing and testing my investment strategy but let me tell you that obsessing over 1 or 2 ideas and throwing every penny at it and holding for a few years is the best strategy. It may not work at some point but right now it does.
I still day trade but I trade with 10k or less on each individual position. It allows me minimize my losses and my winners are 1-7%. I am able to consistently make between 3-700$/ a day on day trades using the above strategy. I still take losses and still dream about hitting it big with an option trade but dont feel the need to put it all on the line every month / week.
I finally crossed into the two , club. I know people are going to ask for proof or ban but I am not earning anything for posting and the details about some of the trades should be proof enough that I kept a detailed journal of it all. I have way more to write but these are the highlights.
Eventually I will share how I build a position in a story I love. I still sell buy and sell to early but I am working on improving.
TL:DR - I gambled, lost it all and gambled some more lost more. I made it out alive. I have only sold calls/puts lately.
The one common denominator in all successful people is how much they obsess over 1 or 2 ideas. Do the same. All the winners on this sub have gone all in on one idea (FSLY / TSLA ). Stick with new stories or ones that are changing and go all in...wait a second, I didnt learn anything.
submitted by jojo2021 to wallstreetbets [link] [comments]

Seekers Beyond the Shroud -- Review and Thoughts

Seekers Beyond the Shroud is a Solo modern day occult RPG, written by Alex T. for Blackoath Entertainment. I first stumbled upon it on Kickstarter in October of 2019, and immediately backed it. There are few deliberately designed Solo RPG's, and its promise of solo rules, robust system, and setting was irresistible. I received my print copy this summer, but haven't had a chance until recently to play it. Now that I have, I wanted to do a quick review of the game, based on both my reading of it as well as the couple of sessions I've been able to play. While most of the review will be discussing the book itself, I'll include some notes on my play experience in spoilers.
Layout and Design
The book itself is solid. The cover image is cool and evocative--and the art in general is very well done. I only backed at the softcover level, but it's a solid and well designed layout. Actually, better than some of the recent games I've bought from more established companies.
Setting
It's modern day London. Your character has gone through some traumatic and horrifying experience that awakened them to the greater supernatural world. After much searching, you have come to the Omphalos, a secret town populated by mystics, monsters, and other...things. There, you begin your journey of both personal enlightenment and personal power.
Character Creation
Seekers uses the 6 classic attributes--Strength, Dexterity, Constitution, Intelligence, and Charisma, with Will replacing Wisdom. The scale is from 1-20, with all starting at 10. You then get an additional 20 points to further customize your character.
I ended up putting my points into Dexterity, Will, Intelligence, and Charisma. I figured Will and Intelligence are key to any aspiring wizard, and--desiring to do something different than a rogue bad ass--I was hoping that Dexterity and Charisma would give me options to solve issues with something other than direct violence. This would become an issue later on.
Next, you have "Secondary Attributes"--Hit Points (Con x10) or Sanity (Int x10) and the like. Then, you have Skills. They're pretty much what you would expect, a mix of combat and non-combat. You have 250 points to spend on the skills, but are limited to no more than 50 in any skill at creation. Some skills have a base value derived from your attributes (for example, One-Handed Melee starts with a value equal to your Str+Dex, while Persuade starts with a value equal to your Charisma X2), while other skills--the mystical ones--begin at 0 and can only be increased through gameplay. If you use a skill 5 times, you can make a Skill-Up roll. If you roll above the current value (i.e.: fail), you add 1 point to the skill.
Given that I had a decent Dex, my combat skills were decent to begin with. I wanted to play an "ordinary joe" kind of character, so I spend my points on skills like Technology, Linguistics, and Persuade. I finally caved to my min/maxing tendencies though, and ended up boosting Parry and Sneak as high as I could, with a smattering of points in other combat skills. I had quite a few in the mid-40's, so my "mild mannered accountant" was surprisingly dangerous. Or so I thought.
Backgrounds
After the basics are done, you roll a d10 for your Background. Each provides and in-depth backstory for your character, and details the traumatic and often horrific moment that set you on the path of magic. Each also provides various penalties and bonuses that further modify your character.
I rolled the "Near Death Experience"--my PC was a workaholic who almost dies of a heart attack. While "dead," he encounter a horrific spirit that he just barely managed to evade. Upon waking, he through aside his career and sought out some explanation for what he had seen. He has a bonus to Psychic Combat--which is used in the Astral Plane--but a penalty to his Constitution and Charisma. I had left my Con at 10, so it dropped to 9, and my Hit Points also dropped from 100 to 90. I wasn't worried though, as I had intended to be more sneaky and charming than tough.
He said foreshadowingly.
Combat
Combat is relatively simple. As you approach a foe, you make an Initiative roll on a d20. Each foe has a static Initiative value; if you beat it, you go first and if not, then they do. If you beat them on the first turn, you have a chance to surprise or avoid them entirely. All combat rolls are done by the player. If an enemy attacks, you need to make a defensive roll (Parry, Dodge, or Find Cover) to avoid their attack, and you make your offensive roll (like One Handed Melee) to hit them. Certain foes are Veterans, and apply penalties to these rolls. Different types of weapons do different amounts of damage--like 2d10+10 for a pistol. In the intro adventure, the PC gains a "talent" that grants them a flat +25 to their damage from then on. Most foes have roughly 100-130 Hit Points, so even with the player bonus, it can take quite a few rounds to get through even minor enemies.
The Mystical World
The next few sections are some of the most interesting, describing the Astral World, Magic, Summoning and Binding Spirits, and the like. I haven't had a chance to really dig into this aspect of the game, however.
The Omphalos and Scenarios
The core of the game is the Omphalos, a hub of trade, commerce, knowledge and intrigue. Here the PC can buy and sell gear, learn new knowledge, encounter the strange denizens of this world, and get missions for various factions. There are four listed in the book, each with their own agendas and philosophy. Each has constant need for "foot soldiers" to do various unsavory tasks for them, and as you gain Favor with each, they provide various bonuses and spells and other benefits.
>! So, I finished the intro scenario, had some knowledge of the greater world, and had been introduced to the Omphalos. Time for the first "real" adventure! First, I roll on the Emphalos Daily Event table and got "quiet day"--things are calm today, and prices are low. I have only a few obols (the currency of the magical realm), so any discount is nice. Then I roll for Encounters, and get "pickpocket." There's no roll to avoid this, so my PC loses 100 obols. This is more than I have, so I am no broke. Desperate for work, I see who is hiring. There are 4 factions, and each might have a represented in town that day, based on a roll of 7+ on a D10. I roll for each, and only one is present, the Causa Scientiae a particularly rational and Order focused faction. I then roll for the Scenario--I get "recover." One of their artifacts has fallen into mortal hands and is in a museum. They want me to recover it for them. Given the setup, there will only be mortal guards--which is nice--and they don't want me to kill anyone. In fact, each guard I kill will cost me the possible Favor reward with the faction. Works for me--I don't want to kill anyone either.!<
I could refuse job, but risk losing Favor with them. Given that they are the only ones hiring today, I'm loathe to refuse. Plus the job seems up my alley--no magics needed (and I have none), and I should avoid all combat. Since other types of mission are "kill everything on site" or "kill everything and cast a really tough ritual" I figure I'm unlikely to get a better mission.
Next I go to the scenario design. There are a number of possible locations, and each has a unique setup, Events, and Discoveries. This is probably my favorite part of the game. I roll some dice, get a list of rooms and locations, and then create a simple map for my explorations. I know given the setup that the artifact in question will be discovered in the 16th room. But, a roleplayer is gonna roleplay, so I decide my PC will make a beeline for the Archives, assuming that the object surely must be there. And, if not, it will have the necessary paperwork showing where the object is.
Each room has unique odds for three different types of encounters--Enemies, Events, and Discoveries. I begin at the Entrance, and have no enemies but an Event reveals Drug Fueled Goons--apparently the guards here are all high as hell, and have a bonus of 20 to their Hit Points, but a -10 to combat. So, tougher to kill, but easier to hit and avoid.
The next room I enter is the Lobby, and there's a guard present. The guard rules state that they will attack on site. I could use an alternate rule that lets you talk past human-type foes but, well, I am breaking in and they are all drugged the hell up, so I stick with the basic rules. Still, I try to avoid them but fail in my starting initiative roll. The battle begins, and the dice are on my side. It's a running gun battle, but I'm able to kill the guard. When he's wounded, he calls for backup, and the dice gods are still smiling at me, and I make it through that battle without any injuries. I'm upset at my failure to avoid combat--and losing Favor with my client--but after some nasty battles in the intro adventure, I start to think I'm getting things sorted out.
I continue exploring and even manage to successfully sneak past a guard. As I'm exploring one of the administration offices, I run into another one. This time I can't avoid him, and another fight ensues. This time, the dice don't roll so well. He quickly gets the better of me, and I end up taking a lot damage. And with only 90 Hit Points, it's far more than I'm comfortable with. I decide to run.
To run away, you need to roll a D20 and, like initiative, and beat their Dexterity but even still they get a free attack on you. Not that it matters, as I fail to disengage. After two rounds spent trying to run away, my PC is shot dead on some secretaries desk and my game came to a close.
Concluding Thoughts
Seekers Beyond the Shroud is a very interesting game. Obviously, a ton of thought, love, and work has been poured into this game. And there is a lot I love about it--the world, the discussions on magic and spirits, the mission setup system--all top notch. But, there are some things that didn't quite work for me.
I'll probably give the game another shot. But, instead of playing an average guy awakening to a wider world, I'll probably go with a more "badass" character and hope he can survive the first few missions. In Seekers, knowing ancient languages is nice, but real mages know how to use a Glock.
TLDR
Seekers Beyond the Shroud is an interesting Solo RPG of modern occult shenanigans. it has a lot of very interesting and fun mechanics to bring the game to life, but suffers from some bad editing (make sure you play through the intro scenario or you WILL miss a key "PC Bonus") and an unforgiving system. Still, worth checking out for any Solo gamer interested in more contemporary game.
submitted by Talmor to Solo_Roleplaying [link] [comments]

Everything You Always Wanted To Know About Swaps* (*But Were Afraid To Ask)

Hello, dummies
It's your old pal, Fuzzy.
As I'm sure you've all noticed, a lot of the stuff that gets posted here is - to put it delicately - fucking ridiculous. More backwards-ass shit gets posted to wallstreetbets than you'd see on a Westboro Baptist community message board. I mean, I had a look at the daily thread yesterday and..... yeesh. I know, I know. We all make like the divine Laura Dern circa 1992 on the daily and stick our hands deep into this steaming heap of shit to find the nuggets of valuable and/or hilarious information within (thanks for reading, BTW). I agree. I love it just the way it is too. That's what makes WSB great.
What I'm getting at is that a lot of the stuff that gets posted here - notwithstanding it being funny or interesting - is just... wrong. Like, fucking your cousin wrong. And to be clear, I mean the fucking your *first* cousin kinda wrong, before my Southerners in the back get all het up (simmer down, Billy Ray - I know Mabel's twice removed on your grand-sister's side). Truly, I try to let it slide. I do my bit to try and put you on the right path. Most of the time, I sleep easy no matter how badly I've seen someone explain what a bank liquidity crisis is. But out of all of those tens of thousands of misguided, autistic attempts at understanding the world of high finance, one thing gets so consistently - so *emphatically* - fucked up and misunderstood by you retards that last night I felt obligated at the end of a long work day to pull together this edition of Finance with Fuzzy just for you. It's so serious I'm not even going to make a u/pokimane gag. Have you guessed what it is yet? Here's a clue. It's in the title of the post.
That's right, friends. Today in the neighborhood we're going to talk all about hedging in financial markets - spots, swaps, collars, forwards, CDS, synthetic CDOs, all that fun shit. Don't worry; I'm going to explain what all the scary words mean and how they impact your OTM RH positions along the way.
We're going to break it down like this. (1) "What's a hedge, Fuzzy?" (2) Common Hedging Strategies and (3) All About ISDAs and Credit Default Swaps.
Before we begin. For the nerds and JV traders in the back (and anyone else who needs to hear this up front) - I am simplifying these descriptions for the purposes of this post. I am also obviously not going to try and cover every exotic form of hedge under the sun or give a detailed summation of what caused the financial crisis. If you are interested in something specific ask a question, but don't try and impress me with your Investopedia skills or technical points I didn't cover; I will just be forced to flex my years of IRL experience on you in the comments and you'll look like a big dummy.
TL;DR? Fuck you. There is no TL;DR. You've come this far already. What's a few more paragraphs? Put down the Cheetos and try to concentrate for the next 5-7 minutes. You'll learn something, and I promise I'll be gentle.
Ready? Let's get started.
1. The Tao of Risk: Hedging as a Way of Life
The simplest way to characterize what a hedge 'is' is to imagine every action having a binary outcome. One is bad, one is good. Red lines, green lines; uppie, downie. With me so far? Good. A 'hedge' is simply the employment of a strategy to mitigate the effect of your action having the wrong binary outcome. You wanted X, but you got Z! Frowny face. A hedge strategy introduces a third outcome. If you hedged against the possibility of Z happening, then you can wind up with Y instead. Not as good as X, but not as bad as Z. The technical definition I like to give my idiot juniors is as follows:
Utilization of a defensive strategy to mitigate risk, at a fraction of the cost to capital of the risk itself.
Congratulations. You just finished Hedging 101. "But Fuzzy, that's easy! I just sold a naked call against my 95% OTM put! I'm adequately hedged!". Spoiler alert: you're not (although good work on executing a collar, which I describe below). What I'm talking about here is what would be referred to as a 'perfect hedge'; a binary outcome where downside is totally mitigated by a risk management strategy. That's not how it works IRL. Pay attention; this is the tricky part.
You can't take a single position and conclude that you're adequately hedged because risks are fluid, not static. So you need to constantly adjust your position in order to maximize the value of the hedge and insure your position. You also need to consider exposure to more than one category of risk. There are micro (specific exposure) risks, and macro (trend exposure) risks, and both need to factor into the hedge calculus.
That's why, in the real world, the value of hedging depends entirely on the design of the hedging strategy itself. Here, when we say "value" of the hedge, we're not talking about cash money - we're talking about the intrinsic value of the hedge relative to the the risk profile of your underlying exposure. To achieve this, people hedge dynamically. In wallstreetbets terms, this means that as the value of your position changes, you need to change your hedges too. The idea is to efficiently and continuously distribute and rebalance risk across different states and periods, taking value from states in which the marginal cost of the hedge is low and putting it back into states where marginal cost of the hedge is high, until the shadow value of your underlying exposure is equalized across your positions. The punchline, I guess, is that one static position is a hedge in the same way that the finger paintings you make for your wife's boyfriend are art - it's technically correct, but you're only playing yourself by believing it.
Anyway. Obviously doing this as a small potatoes trader is hard but it's worth taking into account. Enough basic shit. So how does this work in markets?
2. A Hedging Taxonomy
The best place to start here is a practical question. What does a business need to hedge against? Think about the specific risk that an individual business faces. These are legion, so I'm just going to list a few of the key ones that apply to most corporates. (1) You have commodity risk for the shit you buy or the shit you use. (2) You have currency risk for the money you borrow. (3) You have rate risk on the debt you carry. (4) You have offtake risk for the shit you sell. Complicated, right? To help address the many and varied ways that shit can go wrong in a sophisticated market, smart operators like yours truly have devised a whole bundle of different instruments which can help you manage the risk. I might write about some of the more complicated ones in a later post if people are interested (CDO/CLOs, strip/stack hedges and bond swaps with option toggles come to mind) but let's stick to the basics for now.
(i) Swaps
A swap is one of the most common forms of hedge instrument, and they're used by pretty much everyone that can afford them. The language is complicated but the concept isn't, so pay attention and you'll be fine. This is the most important part of this section so it'll be the longest one.
Swaps are derivative contracts with two counterparties (before you ask, you can't trade 'em on an exchange - they're OTC instruments only). They're used to exchange one cash flow for another cash flow of equal expected value; doing this allows you to take speculative positions on certain financial prices or to alter the cash flows of existing assets or liabilities within a business. "Wait, Fuzz; slow down! What do you mean sets of cash flows?". Fear not, little autist. Ol' Fuzz has you covered.
The cash flows I'm talking about are referred to in swap-land as 'legs'. One leg is fixed - a set payment that's the same every time it gets paid - and the other is variable - it fluctuates (typically indexed off the price of the underlying risk that you are speculating on / protecting against). You set it up at the start so that they're notionally equal and the two legs net off; so at open, the swap is a zero NPV instrument. Here's where the fun starts. If the price that you based the variable leg of the swap on changes, the value of the swap will shift; the party on the wrong side of the move ponies up via the variable payment. It's a zero sum game.
I'll give you an example using the most vanilla swap around; an interest rate trade. Here's how it works. You borrow money from a bank, and they charge you a rate of interest. You lock the rate up front, because you're smart like that. But then - quelle surprise! - the rate gets better after you borrow. Now you're bagholding to the tune of, I don't know, 5 bps. Doesn't sound like much but on a billion dollar loan that's a lot of money (a classic example of the kind of 'small, deep hole' that's terrible for profits). Now, if you had a swap contract on the rate before you entered the trade, you're set; if the rate goes down, you get a payment under the swap. If it goes up, whatever payment you're making to the bank is netted off by the fact that you're borrowing at a sub-market rate. Win-win! Or, at least, Lose Less / Lose Less. That's the name of the game in hedging.
There are many different kinds of swaps, some of which are pretty exotic; but they're all different variations on the same theme. If your business has exposure to something which fluctuates in price, you trade swaps to hedge against the fluctuation. The valuation of swaps is also super interesting but I guarantee you that 99% of you won't understand it so I'm not going to try and explain it here although I encourage you to google it if you're interested.
Because they're OTC, none of them are filed publicly. Someeeeeetimes you see an ISDA (dsicussed below) but the confirms themselves (the individual swaps) are not filed. You can usually read about the hedging strategy in a 10-K, though. For what it's worth, most modern credit agreements ban speculative hedging. Top tip: This is occasionally something worth checking in credit agreements when you invest in businesses that are debt issuers - being able to do this increases the risk profile significantly and is particularly important in times of economic volatility (ctrl+f "non-speculative" in the credit agreement to be sure).
(ii) Forwards
A forward is a contract made today for the future delivery of an asset at a pre-agreed price. That's it. "But Fuzzy! That sounds just like a futures contract!". I know. Confusing, right? Just like a futures trade, forwards are generally used in commodity or forex land to protect against price fluctuations. The differences between forwards and futures are small but significant. I'm not going to go into super boring detail because I don't think many of you are commodities traders but it is still an important thing to understand even if you're just an RH jockey, so stick with me.
Just like swaps, forwards are OTC contracts - they're not publicly traded. This is distinct from futures, which are traded on exchanges (see The Ballad Of Big Dick Vick for some more color on this). In a forward, no money changes hands until the maturity date of the contract when delivery and receipt are carried out; price and quantity are locked in from day 1. As you now know having read about BDV, futures are marked to market daily, and normally people close them out with synthetic settlement using an inverse position. They're also liquid, and that makes them easier to unwind or close out in case shit goes sideways.
People use forwards when they absolutely have to get rid of the thing they made (or take delivery of the thing they need). If you're a miner, or a farmer, you use this shit to make sure that at the end of the production cycle, you can get rid of the shit you made (and you won't get fucked by someone taking cash settlement over delivery). If you're a buyer, you use them to guarantee that you'll get whatever the shit is that you'll need at a price agreed in advance. Because they're OTC, you can also exactly tailor them to the requirements of your particular circumstances.
These contracts are incredibly byzantine (and there are even crazier synthetic forwards you can see in money markets for the true degenerate fund managers). In my experience, only Texan oilfield magnates, commodities traders, and the weirdo forex crowd fuck with them. I (i) do not own a 10 gallon hat or a novelty size belt buckle (ii) do not wake up in the middle of the night freaking out about the price of pork fat and (iii) love greenbacks too much to care about other countries' monopoly money, so I don't fuck with them.
(iii) Collars
No, not the kind your wife is encouraging you to wear try out to 'spice things up' in the bedroom during quarantine. Collars are actually the hedging strategy most applicable to WSB. Collars deal with options! Hooray!
To execute a basic collar (also called a wrapper by tea-drinking Brits and people from the Antipodes), you buy an out of the money put while simultaneously writing a covered call on the same equity. The put protects your position against price drops and writing the call produces income that offsets the put premium. Doing this limits your tendies (you can only profit up to the strike price of the call) but also writes down your risk. If you screen large volume trades with a VOL/OI of more than 3 or 4x (and they're not bullshit biotech stocks), you can sometimes see these being constructed in real time as hedge funds protect themselves on their shorts.
(3) All About ISDAs, CDS and Synthetic CDOs
You may have heard about the mythical ISDA. Much like an indenture (discussed in my post on $F), it's a magic legal machine that lets you build swaps via trade confirms with a willing counterparty. They are very complicated legal documents and you need to be a true expert to fuck with them. Fortunately, I am, so I do. They're made of two parts; a Master (which is a form agreement that's always the same) and a Schedule (which amends the Master to include your specific terms). They are also the engine behind just about every major credit crunch of the last 10+ years.
First - a brief explainer. An ISDA is a not in and of itself a hedge - it's an umbrella contract that governs the terms of your swaps, which you use to construct your hedge position. You can trade commodities, forex, rates, whatever, all under the same ISDA.
Let me explain. Remember when we talked about swaps? Right. So. You can trade swaps on just about anything. In the late 90s and early 2000s, people had the smart idea of using other people's debt and or credit ratings as the variable leg of swap documentation. These are called credit default swaps. I was actually starting out at a bank during this time and, I gotta tell you, the only thing I can compare people's enthusiasm for this shit to was that moment in your early teens when you discover jerking off. Except, unlike your bathroom bound shame sessions to Mom's Sears catalogue, every single person you know felt that way too; and they're all doing it at once. It was a fiscal circlejerk of epic proportions, and the financial crisis was the inevitable bukkake finish. WSB autism is absolutely no comparison for the enthusiasm people had during this time for lighting each other's money on fire.
Here's how it works. You pick a company. Any company. Maybe even your own! And then you write a swap. In the swap, you define "Credit Event" with respect to that company's debt as the variable leg . And you write in... whatever you want. A ratings downgrade, default under the docs, failure to meet a leverage ratio or FCCR for a certain testing period... whatever. Now, this started out as a hedge position, just like we discussed above. The purest of intentions, of course. But then people realized - if bad shit happens, you make money. And banks... don't like calling in loans or forcing bankruptcies. Can you smell what the moral hazard is cooking?
Enter synthetic CDOs. CDOs are basically pools of asset backed securities that invest in debt (loans or bonds). They've been around for a minute but they got famous in the 2000s because a shitload of them containing subprime mortgage debt went belly up in 2008. This got a lot of publicity because a lot of sad looking rednecks got foreclosed on and were interviewed on CNBC. "OH!", the people cried. "Look at those big bad bankers buying up subprime loans! They caused this!". Wrong answer, America. The debt wasn't the problem. What a lot of people don't realize is that the real meat of the problem was not in regular way CDOs investing in bundles of shit mortgage debts in synthetic CDOs investing in CDS predicated on that debt. They're synthetic because they don't have a stake in the actual underlying debt; just the instruments riding on the coattails. The reason these are so popular (and remain so) is that smart structured attorneys and bankers like your faithful correspondent realized that an even more profitable and efficient way of building high yield products with limited downside was investing in instruments that profit from failure of debt and in instruments that rely on that debt and then hedging that exposure with other CDS instruments in paired trades, and on and on up the chain. The problem with doing this was that everyone wound up exposed to everybody else's books as a result, and when one went tits up, everybody did. Hence, recession, Basel III, etc. Thanks, Obama.
Heavy investment in CDS can also have a warping effect on the price of debt (something else that happened during the pre-financial crisis years and is starting to happen again now). This happens in three different ways. (1) Investors who previously were long on the debt hedge their position by selling CDS protection on the underlying, putting downward pressure on the debt price. (2) Investors who previously shorted the debt switch to buying CDS protection because the relatively illiquid debt (partic. when its a bond) trades at a discount below par compared to the CDS. The resulting reduction in short selling puts upward pressure on the bond price. (3) The delta in price and actual value of the debt tempts some investors to become NBTs (neg basis traders) who long the debt and purchase CDS protection. If traders can't take leverage, nothing happens to the price of the debt. If basis traders can take leverage (which is nearly always the case because they're holding a hedged position), they can push up or depress the debt price, goosing swap premiums etc. Anyway. Enough technical details.
I could keep going. This is a fascinating topic that is very poorly understood and explained, mainly because the people that caused it all still work on the street and use the same tactics today (it's also terribly taught at business schools because none of the teachers were actually around to see how this played out live). But it relates to the topic of today's lesson, so I thought I'd include it here.
Work depending, I'll be back next week with a covenant breakdown. Most upvoted ticker gets the post.
*EDIT 1\* In a total blowout, $PLAY won. So it's D&B time next week. Post will drop Monday at market open.
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