what about this strategy for the operator?

this type of arrangement encourages risk taking by the operator. look at this example.

with the 1000, join a coil flip bet:

1. if one wins, 1000 becomes 2000;

2. if one loses, 1000 becomes zero.

in the first case, operator's 100 becomes 100 (principal) + (1000-100)/2 (1/2 of the gain after 10% to the investor) = 550, or $450 net return. owner made $550.

in the 2nd case, operator's 100 becomes 0. Investor's $900 becomes zero.

the operator can keep operating with many different accounts and he will come ahead since coil flipping is a 50-50 bet, although there is no edge. he just needs to make sure the contract in place will protect his legs and his apartment.

the coil flipping bet might not sound too realistic. there are futures and options trading that will essentially do the same thing. the importance for writing a contract is to make sure the incentives of both parties are aligned. not just on returns, but also on risk dimension.

just my 2c.

 

 

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