Marcus Aurelius

Demonic Short Sellers

A lot of people talk about the evil short trade and those who engage in them. However, many people see derivatives as a speculative game where you roll the dice and hope your numbers turn up, rather than a tool traders and institutions use to mitigate risk.

I have a basic grasp of derivatives namely options and futures. When studying up on them I noted a very strong resemblance of puts to my auto insurance policy. In both cases I pay a premium for a time limited policy. In the case of my auto policy if a deer jumps out and totals my car I sell the car at its pre-wreck value to the insurance company, if I have a stock and it crashes then I sell the puts and at least get something back.