SMA Contracts: The Arbitrage of the AT Industry?

The word “arbitrage” gets little use outside of Wall Street brokers and Chicago commodity traders.  The term refers to high risk investments in vehicles like options, futures and other derivative financial products.  When used as intended, arbitrage is typically a manner in which a broker can hedge their bets and minimize losses – kind of an insurance policy against an equity or commodity moving far away from the investor’s prediction.  Many people who play in these markets do not do so to hedge bets but, rather, to make high risk investments by using these vehicles instead of actually purchasing an equity, bond or commodity.

These high rollers might buy an options contract that says that Microsoft stock will grow in value by $5 in the next 30 days.  They will pay something like $1 per share for the right to sell Microsoft at that price within that 30 days.  These contracts require a minimum of 100 shares so our high risk investor bets $100 that MS will jump by $5 in that period.  If MS does make the jump, they have only risked $100 and received a $400 profit.  Of course, if MS doesn’t rise in price, they lose their entire one hundred dollars.  So, people involved in arbitrage make very risky bets based on the future performance of a security.

What does this have to do with SMA programs and AT companies?

When I buy my SMA, I acquire a contract that says that, for some number of dollars, I get the next couple of releases of a screen reader, magnifier or whatever my SMA covers.  Thus, my bet “pays off” if the next versions of the software I use improves on that which I have today.  Or, the next couple of releases contain new features that I will find useful.

So, like those who participate in arbitrage, we blinks who buy an SMA, bet that the quality of the software covered by our contract will improve and that my perceived value of this software will increase in subsequent releases.

Is this true?  

This question is not one I can answer.  I am just pointing out the similarities between buying an SMA which, if the product drops support for a product you like, loses features you enjoy or takes your money to cover the latest version of Skype (for instance) you may not receive the value that you bet would buy you a better product in the future.  Buying an SMA accepts some risk, if the next release really kicks ass and you don’t have an SMA, you lose the difference in cost between an SMA and an upgrade.  If, however, the next release doesn’t have anything you care about or contains bugs in features you enjoy, buying the SMA cost you some number of dollars to take a step backward.

Finally, if you buy an SMA and then discover that an alternative product from a different company will meet your needs better than the one you currently use, you either stick it out with the inferior product or lose your entire SMA cost plus need to pay full price for a new copy of the alternative product.

I buy an SMA for my screen reader.  Usually the following releases contain features I like.  Sometimes, though, I experience the frustration of finding bugs that did not exist in earlier versions.  Sometimes, I ask whether I have won the bet or not.

Upcoming

I will be spending the rest of this week at the ICADI conference in St. Petersburg, Florida.  This conference usually brings a lot of very cool ideas to the forefront so I imagine I’ll be reporting on some cool things in the next few days.