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I will resist the urge to inquire about the difference between reducing and absorbing.

by brookst 7d ago

collingreen 7d ago
I won't. What's the difference here between resisting and absorbing volatility?
- kennywinker 7d ago
  Not a financial expert, but i think reduce implies it goes away, and absorb implies it’s still there but someone is taking it up. Like reducing the amount of water on the floor would be turning off the tap. Absorbing the amount of water on the floor is when you mop it up.
  - hyperhello 7d ago
    That’s exactly what I meant. I was only replying to the question as posed.
  - harpiaharpyja 7d ago
    Or to bring it back to the original context... Reducing volatility would be reducing the impact of bad weather on your harvest, absorbing volatility is finding someone to cover your losses. (presumably by giving up some profits on the good years. It's like a financial low pass filter)
- SR2Z 6d ago
  Volatility is a natural consequence of weather, blight, etc., etc. To reduce volatility you would need to actually stabilize the supply of onions. What futures do is allow traders to shift risk from the future to the present. By pricing that risk, it's possible for people who depend on onions to pay a little more now in exchange for a guarantee about the future. It's not magically going to make onions less volatile (although high risk prices can spur investment which might) but it can reduce disruptions caused by volatility. The classic example of this is futures on jet fuel which allow airlines to weather random wars in the middle east, OPEC shenanigans, etc. Ticket prices are higher this way, but the existential threat of being forced to cancel a bunch of flights is gone.
  - brookst 6d ago
    Oh you’re talking supply volatility, where most of us are talking price volatility.
    - SR2Z 6d ago
      As long as demand remains inelastic, the two are the same. If there is a supply shortage prices will rise; no amount of futures trading can create resources out of thin air.

I will resist the urge to inquire about the difference between reducing and absorbing.

collingreen 7d ago

I won't. What's the difference here between resisting and absorbing volatility?

kennywinker 7d ago
Not a financial expert, but i think reduce implies it goes away, and absorb implies it’s still there but someone is taking it up. Like reducing the amount of water on the floor would be turning off the tap. Absorbing the amount of water on the floor is when you mop it up.
- hyperhello 7d ago
  That’s exactly what I meant. I was only replying to the question as posed.
- harpiaharpyja 7d ago
  Or to bring it back to the original context... Reducing volatility would be reducing the impact of bad weather on your harvest, absorbing volatility is finding someone to cover your losses. (presumably by giving up some profits on the good years. It's like a financial low pass filter)
SR2Z 6d ago
Volatility is a natural consequence of weather, blight, etc., etc. To reduce volatility you would need to actually stabilize the supply of onions. What futures do is allow traders to shift risk from the future to the present. By pricing that risk, it's possible for people who depend on onions to pay a little more now in exchange for a guarantee about the future. It's not magically going to make onions less volatile (although high risk prices can spur investment which might) but it can reduce disruptions caused by volatility. The classic example of this is futures on jet fuel which allow airlines to weather random wars in the middle east, OPEC shenanigans, etc. Ticket prices are higher this way, but the existential threat of being forced to cancel a bunch of flights is gone.
- brookst 6d ago
  Oh you’re talking supply volatility, where most of us are talking price volatility.
  - SR2Z 6d ago
    As long as demand remains inelastic, the two are the same. If there is a supply shortage prices will rise; no amount of futures trading can create resources out of thin air.