Thursday, October 25, 2012

How to Write Snark: Congressman Markey is not an idot Edition

This is just cruel.
From the Streetwise Professor:

And the Clueless Will Rule Us
In an effort to defend Obama’s debate #2 defense of his energy policy, Ed Markey, Dim-I mean Dem-MA is scandalized that 20 million acres of leases in the Gulf of Mexico are not being drilled.  (H/T Jim O.)  This part is priceless:
Markey’s study added that about half of the leases have been idle for at least five years and that 80 percent of the idle leases were purchased for less than $300 an acre.
So Ed is mystified that the really cheap leases are disproportionately idle.  I guess he would also be Shocked! Shocked! that deep out-of-the-money stock options are not exercised: why would someone buy a call on Apple struck at $2000 and not exercise it?

But that’s exactly what’s going on here.  The cheap leases are the marginal properties.  The way out-of-the-money development options.  Buyers are willing to pay a little for such properties, on the outside chance that either market developments (e.g., a huge rise in oil prices), or a technological shock (a new drilling method that makes previously inaccessible properties economic to develop), or a new piece of information about the property itself will make it economical to drill on it....MORE
Just one quick question. Speaking of options, if the risk to a portfolio decreases with time ("Never had a negative 20-year total return, blah, blah...) why are long-dated puts more expensive than the shorter ones?