“I want to keep my options open.”

If I had a dollar for every time I had heard someone say this, I’d be… well, not rich exactly, but quite well-off, especially when I was in school. People talked (and still do) about careers in terms of “exit options,” with consulting in particular being at the top because a stint in consulting could lead to so many different paths. The more cynical description of consultants was that they were people who didn’t know what they wanted to be when they grew up.

Either way, keeping options open—or delaying a decision as long as possible—was one of the main draws of a career in consulting. However, in my view, endlessly pursuing optionality is a trap.

Optionality and the Fear of Commitment

Valuing optionality above all else is just a disguised fear of commitment.

People resist committing (in career, business, romance, you name it) in part because of the fear of making a wrong choice, and the consequences that follow (what if there had been a better career?) We would rather wait until we know the “right answer” (and from studying markets we know that it’s virtually impossible to know the right answer, we can only make calculated bets!) and then we tell ourselves that we will hard commit, while accumulating valuable skills in the meantime.

The problem is, this isn’t really progress. Optionality can feel like progress, but it can also be stagnation in disguise. I’ve said before on this blog that in order to do something great, we have to get practice and repetitions. The longer we delay making a choice, the longer we delay starting the process of building up the practice and reps that are necessary to ultimately be successful.

Since we learn the quickest by making mistakes, we may actually learn more by going out and trying something than by waiting for the “right” opportunity or a “complete” skill set. Many people who are interested in entrepreneurship go into consulting because consulting is “good training for entrepreneurship.” Maybe, but being an entrepreneur (even a bad one) is better training.

Financial Markets and Options: The Cost of Carry

In finance, keeping optionality very literally costs you money.

You may have heard of options trading before. In markets, you can buy a type of derivative called an “option” which gives you the right to buy or sell something at a predetermined price. For example, if you bought Tesla shares at $500, you can also buy a put option at say $400 which gives you the right to sell your Tesla shares for $400. If the price of Tesla crashes to $200, then owning the put option is valuable because even though the market crashed to $200, you can still sell your shares for $400.

Having the choice to do this is obviously valuable and market participants use options to protect themselves against uncertainty in the market. The problem is, buying options costs money and it’s very possible that you will spend lots of money buying options and the market price will never move enough for you to take advantage of them. Moreover, options eventually expire (are no longer valid), which means their value decays over time. In finance we call this the “cost of carry,” which is basically the cash you are bleeding constantly refreshing your options. If all you ever do is hoard options, you will eventually go broke.

This idea maps directly to careers and life choices. Early in life, or early in our careers, our options have the greatest value. But career optionality isn’t free. These options decay in value over time. If we delay and delay, keep our options open for longer and longer, we ultimately delay making a true investment and therefore permanently lose the compound interest we could have gained over that time.

Betting on Yourself Instead of Holding Options

Since this is emotions and finance I want to bring this back to fear, and faith.

The best investors deploy capital—in size—when they see asymmetric upside (Buffett’s “fat pitch.”) The best professionals do the same. At some point, they take their accumulated knowledge and experience and go all-in on a skill, an industry or a venture.

There is some kind of magic that seems to happen when people figuratively burn the boats and go all-in on themselves. When we are out of options (backed into a corner) we do things, and take risks, and act, in ways that we wouldn’t if we had a backup plan. In a way, having no Plan B unlocks a level of focus, clarity and decisiveness in us that we don’t have when we approach things in a wishy-washy way. If these actions or ideas are unconventional, we have chances to earn outsize returns. Moreover, if we never commit, we never give ourselves the chance to earn the compounding returns of mastery.

At some point, we have to trust our investing acumen enough to stop hedging. The best investors deploy capital and the best people bet on themselves. We have to ask ourselves, what is the option that we are hanging onto in our lives that is decaying in value? Maybe it’s time to exercise it.

Exercise

Journal on the following or discuss with a friend.

1)      Open Options Positions

Where in my life am I keeping my options open? Where have I been hanging onto an option—avoiding commitment—over a long period of time?

2)      Cost of Carry

Of the life options that I hold, which ones are decaying in value over time? In which areas of my life is the time decay the fastest?

Where do I face an opportunity set (choices) that is pretty good right now, but will be a much smaller set of choices in a year, five years, ten years?

3)      Exercise

Which option do I hold that feels the scariest to exercise?

Remember, fear is not your enemy, fear is your path forward.

After accepting my fear of making the commitment, can I go ahead and exercise my option, place my bet, place my bet on myself to handle the situation if it goes wrong and figure things out?