But what if I already know everything!?

But hang on a sec! You might be thinking that you have all the information you need... and if I have all the information I need... there is no need to hold off making that decision. Right?

The problem with making a decision early is that you don't always know what you don't know. By buying some extra time... by deferring an option until closer to its expiry... you create an opportunity to learn MORE information... information you probably didn't even know would come available.

You might even end up with some new options... and guess what... those new options have value too! And that is the real rub... it's not just the value of the of the options that you have now... it's also the value of the options that have not yet presented themselves. There are times when it makes sense to decide early... but make sure you know why. Fear of the unknown is not really a good reason to decide early.

If you are deciding early because you think you know everything... you might be closing off options you didn't even know you had.

Comments

[Martin Proulx]

Yes, but...
- when do you know you have all the information you need?
- what if the value of the new information is smaller than the benefits associated with acting quickly?
- how do you measure the value of the incremental information?
- what if analyzing additional information gets you into analysis-paralysis?

I am a strong proponent of "good enough". Gather enough information to make a sensible decision and live with it. If the decision wasn't perfect, the time you saved by not waiting on additional information will allow you to inspect and adapt.

[Mike Cottmeyer]

Martin,

The idea behind options theory is that you understand *when* options expire. You don't wait around forever for new information... you understand how long you can wait. If you learn more and the value of the new option is smaller... go with the original plan. If you don't learn anything new before the expiry date... then go with the original plan. But... if you learn new information... and it has more value... you have leveraged your options for maximum ROI.

Mike