Picking Up Pennies
Picking up pennies in front of a steamroller is harvesting small carry or premium while being short a rare, violent tail.
Definition
You collect 5–15 bp a month selling crash, selling left-tail credit, or running levered basis. The steamroller is the gap that takes years of pennies in a week. The strategy can have a beautiful Sharpe until it does not.
Why it matters
Most ‘steady’ hedge-fund years that die in one quarter were pennies. Risk reports that show 99% VaR hide the steamroller.
Case
Short-vol ETN blow-ups (2018), pick-up in EM carry into 1997/98, and harvesting MBS OAS into 2007.
How to read it
Ask for the gap scenario and the unwind path. If the answer is ‘it has never happened,’ you found the steamroller.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- Why Are Put Options So Expensive?Bondarenko · 2014 · Quarterly Review of Economics and FinanceThe premium that penny-pickers sell.