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If you put $X in to AAPL, you can hedge against catastrophe by putting $X/10 in to an option to sell AAPL, which will limit your losses if the stock drops to 0
by ineptech 6y ago
If you put $X in to AAPL, you can hedge against catastrophe by putting $X/10 in to an option to sell AAPL, which will limit your losses if the stock drops to 0 tomorrow. So in theory, they can be used sensibly.
But in practice I think it's not the existence of the derivatives market, it's the size. Our economy is like a town with 1 farmer and 9 investors who spend all day wagering with each other on whether the farmer will have a good crop.
- saddlerustle 6y ago> Our economy is like a town with 1 farmer and 9 investors who spend all day wagering with each other on whether the farmer will have a good crop. Objectively, that's not true. The finance industry is under 10% of GDP and under 5% of jobs.
- unFou 6y agoInterestingly enough, a quick google search shows US farms contribute 136 billion, or about 0.6% of GDP. So, more like 1 farmer to 19 investors?
- ineptech 6y agoMeasured how? I would argue that some of the finance industry contributes to GDP (e.g. derivatives that facilitate some kind of real capital investment that wouldn't have happened without them), but John Q. Billionaire shorting a stock because he thinks it will go down does not.