Re:GameStop Is Rage Against the Financial Machine
by Youden on Wednesday January 27, 2021 @01:19PM
(#25931741)
So many ways:
- If you own a stock and want to reduce the downside risk, you can buy a put option to ensure you'll always be able to sell your stock for a reasonable price, even if there's a financial crash.
- If you have the ability to produce some product (e.g. grain) but need some extra money (e.g. to buy seed or fix a tractor) or just want to lock in a sale price for your product, you can sell a futures contract.
- If you want need some product at some point in the future (e.g. fuel for your jets) and want to lock in the price, you can buy a futures contract.
Fundamentally, derivatives allow you to trade risk. You can pay somebody to absorb some risk for you or you can accept some risk in exchange for money.
- If you own a stock and want to reduce the downside risk, you can buy a put option to ensure you'll always be able to sell your stock for a reasonable price, even if there's a financial crash.
- If you have the ability to produce some product (e.g. grain) but need some extra money (e.g. to buy seed or fix a tractor) or just want to lock in a sale price for your product, you can sell a futures contract.
- If you want need some product at some point in the future (e.g. fuel for your jets) and want to lock in the price, you can buy a futures contract.
Fundamentally, derivatives allow you to trade risk. You can pay somebody to absorb some risk for you or you can accept some risk in exchange for money.