Last visit was: 01 May 2026, 12:30 It is currently 01 May 2026, 12:30
Home
Messages
Tests
Schools
Events
Close
GMAT Club Daily Prep
Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History
Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.
Go to My Error Log Learn more
Close
Request Expert Reply
Confirm Cancel
Back to Forum
Create Topic
User avatar
GMATPill
User avatar
Joined: 14 Apr 2009
Last visit: 17 Sep 2020
Posts: 2,260
Own Kudos:
3,853
 [10]
Given Kudos: 8
Location: New York, NY
Posts: 2,260
Kudos: 3,853
 [10]
GMAT As Financial "Call Option" Updated on: 26 Dec 2012, 20:46
Originally posted by GMATPill on 24 Dec 2012, 14:24.
Last edited by GMATPill on 26 Dec 2012, 20:46, edited 1 time in total.
10
Kudos
Add Kudos
Bookmarks
Bookmark this Post
A contributing staff member would like to share his insights on what the GMAT exam means for your career. He is a credit derivatives trader and sees the GMAT exam as a "call option" on your career. Take a look:








So what do you think?

Do you see the GMAT exam as a financial "call option" on your career?
User avatar
jumsumtak
User avatar
Joined: 23 Mar 2011
Last visit: 14 Jun 2023
Posts: 1,092
Own Kudos:
594
Given Kudos: 479
Concentration: Healthcare, Strategy
Schools: Duke '16 (M)
Schools: Duke '16 (M)
Posts: 1,092
Kudos: 594
GMAT As Financial "Call Option" 25 Dec 2012, 10:29
Kudos
Add Kudos
Bookmarks
Bookmark this Post
One of the best posts on GC.
Great analogy and the thing in the box (on when to take the GMAT) is what I always advise people to do. Take it early enough, when you are in a good shape.
avatar
BigBrownFox
avatar
Joined: 12 Dec 2012
Last visit: 31 Aug 2013
Posts: 27
Own Kudos:
9
Given Kudos: 10
Posts: 27
Kudos: 9
GMAT As Financial "Call Option" 25 Dec 2012, 21:21
Kudos
Add Kudos
Bookmarks
Bookmark this Post
Hmm interesting read. The only disagreement that I would have with this analogy is that taking the GMAT is not entering into a legal trading contract by taking opposite sides of a bet with a counterparty.

Ie for you to take a profit by buying a call option in the financial markets, the counterparty who sold you that option must take an equally-sized loss (discounting fees). Conversely if you take a loss by buying that put option, then the counterparty that sold you the option would take a equally-sized profit in that trade.

Of course by taking the GMAT, going to business school, and then making lots of money from your successful career, GMAC doesn't actually lose any money as a result of all of your successes, which is why the analogy is flawed.

Anyways interesting read, thanks for sharing, and kudos for the post!
avatar
mikeynyc
avatar
Joined: 19 Apr 2012
Last visit: 07 Oct 2013
Posts: 5
Own Kudos:
1
 [1]
Given Kudos: 1
Products:
My Reviews
Posts: 5
Kudos: 1
 [1]
GMAT As Financial "Call Option" 26 Dec 2012, 17:04
1
Kudos
Add Kudos
Bookmarks
Bookmark this Post
BigBrownFox
Hmm interesting read. The only disagreement that I would have with this analogy is that taking the GMAT is not entering into a legal trading contract by taking opposite sides of a bet with a counterparty.

Ie for you to take a profit by buying a call option in the financial markets, the counterparty who sold you that option must take an equally-sized loss (discounting fees). Conversely if you take a loss by buying that put option, then the counterparty that sold you the option would take a equally-sized profit in that trade.

Of course by taking the GMAT, going to business school, and then making lots of money from your successful career, GMAC doesn't actually lose any money as a result of all of your successes, which is why the analogy is flawed.

Anyways interesting read, thanks for sharing, and kudos for the post!
Show more

Hi BigBrownFox -

I am actually the guest author of this article.

What you argue as "flawed" I argue as "awesome". What you are essentially saying is that the GMAT exam is such that there is unlimited upside for the taker, but the fictitious counter-party of the GMAT exam option doesn't "lose" that equal amount. Thus, the gmat is like a call option but without the one-for-one winner / loser scenario: everyone wins. In other words, it is even better than a call option.

Of course, such an instrument in which there is only a winner and no loser does not exist in the real world so the call option analogy was to me the most suitable way to explain the kind of asymmetry in the potential payoffs vs costs that one can experience by taking the GMAT.

Thanks for your viewpoint though. Another way to think about it is that this analogy is actually "conservative" in the sense that it is even better than the kind of payoff the call option provides (in the sense that there is no loser, to stretch your view of looking at it). And isn't it better to be conservative rather than agressive?

Cheers,

Mikey
User avatar
GMATPill
User avatar
Joined: 14 Apr 2009
Last visit: 17 Sep 2020
Posts: 2,260
Own Kudos:
3,853
 [1]
Given Kudos: 8
Location: New York, NY
Posts: 2,260
Kudos: 3,853
 [1]
GMAT As Financial "Call Option" 26 Dec 2012, 21:07
1
Kudos
Add Kudos
Bookmarks
Bookmark this Post
mikeynyc
BigBrownFox
Hmm interesting read. The only disagreement that I would have with this analogy is that taking the GMAT is not entering into a legal trading contract by taking opposite sides of a bet with a counterparty.

Ie for you to take a profit by buying a call option in the financial markets, the counterparty who sold you that option must take an equally-sized loss (discounting fees). Conversely if you take a loss by buying that put option, then the counterparty that sold you the option would take a equally-sized profit in that trade.

Of course by taking the GMAT, going to business school, and then making lots of money from your successful career, GMAC doesn't actually lose any money as a result of all of your successes, which is why the analogy is flawed.

Anyways interesting read, thanks for sharing, and kudos for the post!

Hi BigBrownFox -

I am actually the guest author of this article.

What you argue as "flawed" I argue as "awesome". What you are essentially saying is that the GMAT exam is such that there is unlimited upside for the taker, but the fictitious counter-party of the GMAT exam option doesn't "lose" that equal amount. Thus, the gmat is like a call option but without the one-for-one winner / loser scenario: everyone wins. In other words, it is even better than a call option.

Of course, such an instrument in which there is only a winner and no loser does not exist in the real world so the call option analogy was to me the most suitable way to explain the kind of asymmetry in the potential payoffs vs costs that one can experience by taking the GMAT.

Thanks for your viewpoint though. Another way to think about it is that this analogy is actually "conservative" in the sense that it is even better than the kind of payoff the call option provides (in the sense that there is no loser, to stretch your view of looking at it). And isn't it better to be conservative rather than agressive?

Cheers,

Mikey
Show more


Good points.

BigBrownFox, you seem to suggest that GMAC is selling the call option and you are buying from them...and in that sense, GMAC is taking the opposite side of the trade.

Well, technically, that's not what's happening since GMAC is not on the opposite side. Our gain is not their loss.

Rather, GMAC is almost kind of like the exchange that charges you that fee for buying that call option from some imaginary ether. So perhaps something like the NYSE or NASDAQ that makes a small fee (not too different from the $250 fee to take the GMAT test) for each "trade" or test they administer.

The more people who take the test, the more exchange fees they will collect. Perhaps that may be a clearer way to draw the analogy. Counterparty and zero-sum games that are more common with OTC derivative contracts are probably not the best way to look at it.
Moderators:
gchandana
194 posts
MBAACCOUNT2025
General GMAT Forum Moderator
474 posts