4 ms·

> said Chairman Michael S. Selig. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. Ah yes, "derivativ

by Terr_ 2mo ago

> said Chairman Michael S. Selig. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. Ah yes, "derivatives" which are "not intended to fall under gaming laws" such as... *checks Kalshi website* 58 million dollars riding on which team is the 2027 NFL champion. Oh yeah, totally a financial derivative there, not related to gambling at all. *sigh*

xp84 2mo ago
ELI5 why it's better for you to place a $10,000 bet that, say, GOOG falls below $300 by February 2028, than to bet the same that the Pats win the Super Bowl? They're both gambling.
- subtlejellyfish 2mo ago
  There's a legitimate, non-gambling use case: hedging against your existing position in GOOG. There's no equivalent instrument for sports.
  - BLKNSLVR 2mo ago
    That sounds _exactly_ like a gambling use case.
    - subtlejellyfish 2mo ago
      Only if you're buying the options naked. If I'm holding GOOG shares, I can buy puts to protect my downside risk (that's the hedge).
  - triceratops 2mo ago
    > There's no equivalent instrument for sports. Options on the sports team's parent company. I mean you want to hedge against financial losses due to on-field performance but also commercial performance, right? What is the utility of hedging purely against on-field performance?
    - subtlejellyfish 2mo ago
      1. Very few sports teams I can think of have publicly traded parents 2. On field performance has little to do with financial gains/losses outside of gambling.
      - triceratops 2mo ago
        > Very few sports teams I can think of have publicly traded parents Sure, but those are also the only kind where buying options to hedge losses makes sense. For privately owned teams, only the owner(s) ha(s|ve) any reason to try to hedge losses. They can buy some kind of "missed the playoffs" insurance, if anyone will sell it. Mostly though it's part of the game and they just deal with. > On field performance has little to do with financial gains/losses outside of gambling. Turning sporting outcomes into derivatives doesn't make it "not gambling" just because you say "but muh hedging strategy". On-field performance impacts commercial appeal and revenue. But ultimately hedging is about covering negative financial impacts, not betting on sporting outcomes. I think we're in agreement on this.
        xp84 2mo ago
        > [Owners] can buy some kind of "missed the playoffs" insurance I suppose with Kalshi etc. they can today but "insurance" is just another word for 'betting whatever bad thing will happen.' So if an owner bought any kind of insurance that paid them if they performed poorly, I would assume they were going to do things to intentionally degrade their team's performance, and would hope the league would recognize this as extreme moral hazard and kick them out of the league.
        triceratops 2mo ago
        > So if an owner bought any kind of insurance that paid them if they performed poorly It's the same as the CEO of a public company buying puts on their company's stock. I agree "derivatives" is a feeble excuse for sports betting.
  - brainwad 2mo ago
    There no requirement to be long the underlying before buying them though. And most people trading options aren't using them this way. Hedging is a legitimacy figleaf for options, everyone knows that most of the volume is in speculation, especially from retail.
- rcxdude 2mo ago
  The fact that you can turn useful financial instruments into a casino isn't really a great argument for just leaning into it by abandoning all connection to any real utility.
- Terr_ 2mo ago
  I don't think I can make a good ELI5 argument for (or against) that one as-written, because there are multiple differences going on at the same time. For example: 1. When you "lose" shorting a stock your potential loss is infinite, because you might be on the hook to buy (and then give away) GOOG at an arbitrarily high price. In contrast, the super-bowl bet is probably a fixed amount. 2. In the opposite direction, it's hard to see how the Super Bowl bet can really be hedging to reduce how much you're relying on chance in your life... not unless you happen to own a store selling single-team merchandise and you want to limit how much money you might lose if nobody wants to buy it. _________ P.S.: Let's flip it around: If we assume shorting GOOG is the same as sports-gambling, then why (AFAIK) has no bookie or casino ever even tried to offer the same kind of bet, where you get $X now but you're obligated to supply $THING later? Does that absence tell us something about an important difference between them?
  - xp84 2mo ago
    I picked (for some reason) a random example of a made-up put option position, and most of the above response seems centered around the special qualities of short positions and put options. But there's just as much stock market gambling on the "bullish" direction, which doesn't have most of those same properties. This part rings true partially though: "hedging to reduce how much you're relying on chance in your life" ... so you're saying that it's bad for society when people rely very much on chance in their life? Is it the proper role of the government though, to put people in jail because they relied on chance too much in their life? Because that's what gambling bans amount to. And on top of everything, these exact same governments (including New York!) purport to "help" society by banning gambling, while still selling lottery tickets themselves.
- SpicyLemonZest 2mo ago
  As far as I can tell, binary options on "GOOG below $300 by February 2028" do not exist in the US market. I absolutely think that single-stock binary options are terrible gambling products and should not be allowed. The thing that I suspect you're intending to describe, a put option expiring in January 2028 (there is no such contract for February) with a break-even at $300, has a different structure which greatly increases its utility for financial purposes and greatly decreases its appeal for gambling. It's hard for a casual bettor to even identify what the correct product is (it was the $355 strike at close of market today, but it may be different tomorrow!), bets are only accepted in increments of $5,500, and your winnings may be minimal unless Google falls either more quickly or more severely. If I'm trying to hedge my Google exposure, though, I'm perfectly happy with the scenario where I didn't win much because Google didn't go down much.
- lxgr 2mo ago
  You actually raise a great point for regulating high-risk (and recently heavily gamified) options and futures bets more like gambling for retail investors.
  - clickety_clack 2mo ago
    Totally agree with this. I don't understand how those organizations aren't "bucket shops" which have basically been illegal in the states since the 1920s. As bad as they are, at least it's really hard to move the stock market, and very illegal to do it in most of the dishonest ways you can think of. With prediction markets we have people betting on the words they will themselves say...
    - lxgr 2mo ago
      As I understand it, the main problem with bucket shops was that they were the counterparty to each bet, so they had a very high interest in customers actually losing. More legitimate exchanges earn their money via trading fees, so at least they only have an interest in customers trading a lot. Unfortunately, when trading a lot at negative expected value, the outcomes converge...
caleblloyd 2mo ago
Totally a financial derivative for Mattress Mack, but probably not for the rest of us.
clickety_clack 2mo ago
See here, I’m just a poor NFL Championship farmer. Without these futures to give me some certainty around prices, it’s just too risky to plant these crops. You city folk think that NFL Championships grow in your fancy stadiums, and you never see all the work I put into feeding and watering all these athletes. It’s risky enough as it is, the crop can fail due to weather, or even something so small as Dave forgetting to wear his lucky socks when a game is on.

by Terr_ 2mo ago

xp84 2mo ago

ELI5 why it's better for you to place a $10,000 bet that, say, GOOG falls below $300 by February 2028, than to bet the same that the Pats win the Super Bowl? They're both gambling.

subtlejellyfish 2mo ago
There's a legitimate, non-gambling use case: hedging against your existing position in GOOG. There's no equivalent instrument for sports.
- BLKNSLVR 2mo ago
  That sounds _exactly_ like a gambling use case.
  - subtlejellyfish 2mo ago
    Only if you're buying the options naked. If I'm holding GOOG shares, I can buy puts to protect my downside risk (that's the hedge).
- triceratops 2mo ago
  > There's no equivalent instrument for sports. Options on the sports team's parent company. I mean you want to hedge against financial losses due to on-field performance but also commercial performance, right? What is the utility of hedging purely against on-field performance?
  - subtlejellyfish 2mo ago
    1. Very few sports teams I can think of have publicly traded parents 2. On field performance has little to do with financial gains/losses outside of gambling.
    - triceratops 2mo ago
      > Very few sports teams I can think of have publicly traded parents Sure, but those are also the only kind where buying options to hedge losses makes sense. For privately owned teams, only the owner(s) ha(s|ve) any reason to try to hedge losses. They can buy some kind of "missed the playoffs" insurance, if anyone will sell it. Mostly though it's part of the game and they just deal with. > On field performance has little to do with financial gains/losses outside of gambling. Turning sporting outcomes into derivatives doesn't make it "not gambling" just because you say "but muh hedging strategy". On-field performance impacts commercial appeal and revenue. But ultimately hedging is about covering negative financial impacts, not betting on sporting outcomes. I think we're in agreement on this.
      - xp84 2mo ago
        > [Owners] can buy some kind of "missed the playoffs" insurance I suppose with Kalshi etc. they can today but "insurance" is just another word for 'betting whatever bad thing will happen.' So if an owner bought any kind of insurance that paid them if they performed poorly, I would assume they were going to do things to intentionally degrade their team's performance, and would hope the league would recognize this as extreme moral hazard and kick them out of the league.
        triceratops 2mo ago
        > So if an owner bought any kind of insurance that paid them if they performed poorly It's the same as the CEO of a public company buying puts on their company's stock. I agree "derivatives" is a feeble excuse for sports betting.
- brainwad 2mo ago
  There no requirement to be long the underlying before buying them though. And most people trading options aren't using them this way. Hedging is a legitimacy figleaf for options, everyone knows that most of the volume is in speculation, especially from retail.
rcxdude 2mo ago
The fact that you can turn useful financial instruments into a casino isn't really a great argument for just leaning into it by abandoning all connection to any real utility.
Terr_ 2mo ago
I don't think I can make a good ELI5 argument for (or against) that one as-written, because there are multiple differences going on at the same time. For example: 1. When you "lose" shorting a stock your potential loss is infinite, because you might be on the hook to buy (and then give away) GOOG at an arbitrarily high price. In contrast, the super-bowl bet is probably a fixed amount. 2. In the opposite direction, it's hard to see how the Super Bowl bet can really be hedging to reduce how much you're relying on chance in your life... not unless you happen to own a store selling single-team merchandise and you want to limit how much money you might lose if nobody wants to buy it. _________ P.S.: Let's flip it around: If we assume shorting GOOG is the same as sports-gambling, then why (AFAIK) has no bookie or casino ever even tried to offer the same kind of bet, where you get $X now but you're obligated to supply $THING later? Does that absence tell us something about an important difference between them?
- xp84 2mo ago
  I picked (for some reason) a random example of a made-up put option position, and most of the above response seems centered around the special qualities of short positions and put options. But there's just as much stock market gambling on the "bullish" direction, which doesn't have most of those same properties. This part rings true partially though: "hedging to reduce how much you're relying on chance in your life" ... so you're saying that it's bad for society when people rely very much on chance in their life? Is it the proper role of the government though, to put people in jail because they relied on chance too much in their life? Because that's what gambling bans amount to. And on top of everything, these exact same governments (including New York!) purport to "help" society by banning gambling, while still selling lottery tickets themselves.
SpicyLemonZest 2mo ago
As far as I can tell, binary options on "GOOG below $300 by February 2028" do not exist in the US market. I absolutely think that single-stock binary options are terrible gambling products and should not be allowed. The thing that I suspect you're intending to describe, a put option expiring in January 2028 (there is no such contract for February) with a break-even at $300, has a different structure which greatly increases its utility for financial purposes and greatly decreases its appeal for gambling. It's hard for a casual bettor to even identify what the correct product is (it was the $355 strike at close of market today, but it may be different tomorrow!), bets are only accepted in increments of $5,500, and your winnings may be minimal unless Google falls either more quickly or more severely. If I'm trying to hedge my Google exposure, though, I'm perfectly happy with the scenario where I didn't win much because Google didn't go down much.
lxgr 2mo ago
You actually raise a great point for regulating high-risk (and recently heavily gamified) options and futures bets more like gambling for retail investors.
- clickety_clack 2mo ago
  Totally agree with this. I don't understand how those organizations aren't "bucket shops" which have basically been illegal in the states since the 1920s. As bad as they are, at least it's really hard to move the stock market, and very illegal to do it in most of the dishonest ways you can think of. With prediction markets we have people betting on the words they will themselves say...
  - lxgr 2mo ago
    As I understand it, the main problem with bucket shops was that they were the counterparty to each bet, so they had a very high interest in customers actually losing. More legitimate exchanges earn their money via trading fees, so at least they only have an interest in customers trading a lot. Unfortunately, when trading a lot at negative expected value, the outcomes converge...

caleblloyd 2mo ago

Totally a financial derivative for Mattress Mack, but probably not for the rest of us.

clickety_clack 2mo ago

See here, I’m just a poor NFL Championship farmer. Without these futures to give me some certainty around prices, it’s just too risky to plant these crops. You city folk think that NFL Championships grow in your fancy stadiums, and you never see all the work I put into feeding and watering all these athletes. It’s risky enough as it is, the crop can fail due to weather, or even something so small as Dave forgetting to wear his lucky socks when a game is on.