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I take as dim a view as anyone of hyper-financialization: the incentive for a sophosticated market participant to market high complexity instruments to cless so

I take as dim a view as anyone of hyper-financialization: the incentive for a sophosticated market participant to market high complexity instruments to cless sophisticated counter parties is clear and pernicious. If we had allowed the CFTC to regulate OTC derivatives products in the 90s we'd be living in a different timeline. But standard American and European options contracts are neither complex nor uniquely suited to speculation. These instruments are so fundamental that in many treatments you use them as the atoms from which to build more familiar instruments (theres a great MIT OpenCourseware about the martingale construction of an equity from binaries and calls, British guy, forget his name). You can explain such instruments to a precocious child and they've been in use by merchants and farmers and all kinds of people into the mists of antiquity. It gives responsible financial regulation a bad name to be like "its the puts and those damn calls!"

deltarholamda 1y ago
The purpose of stocks is to raise money for a company. The purpose of the stock market is to give those stocks liquidity. The further away from this basic framework we go the more dangerous it gets. Derivatives are not inherently antithetical to the basic framework, but they present new options and opportunities for market distortion that can't be ignored. We've seen how badly things can go, numerous times. And that doesn't even address the problems you get with wealth concentration, especially when your currency is untethered to some sort of commodity and can inflate more freely. I'd like to see some real changes, but the problem is that the people who would make changes are so tied up with the market itself that any changes are superficial and often merely present new avenues of chicanery. It's not likely anything will be done, and when the next collapse happens, no lessons will be learned.
- Workaccount2 1y ago
  Options are literally just insurance plans for stocks. Just like car insurance or home insurance. They are called options, because when you get in a car crash you have the option of calling your insurer, because you purchased insurance. When your stock crashes, you have the option to call the counter-party to cover the loss. If options were called "insurance contracts", they would still be the same thing, and probably more understandable to the public.

deltarholamda 1y ago

The purpose of stocks is to raise money for a company. The purpose of the stock market is to give those stocks liquidity. The further away from this basic framework we go the more dangerous it gets. Derivatives are not inherently antithetical to the basic framework, but they present new options and opportunities for market distortion that can't be ignored. We've seen how badly things can go, numerous times. And that doesn't even address the problems you get with wealth concentration, especially when your currency is untethered to some sort of commodity and can inflate more freely. I'd like to see some real changes, but the problem is that the people who would make changes are so tied up with the market itself that any changes are superficial and often merely present new avenues of chicanery. It's not likely anything will be done, and when the next collapse happens, no lessons will be learned.

Workaccount2 1y ago
Options are literally just insurance plans for stocks. Just like car insurance or home insurance. They are called options, because when you get in a car crash you have the option of calling your insurer, because you purchased insurance. When your stock crashes, you have the option to call the counter-party to cover the loss. If options were called "insurance contracts", they would still be the same thing, and probably more understandable to the public.