You're arguably the only person on TH-cam who doesn't waste even a nanosecond to advertise his channel and gets right into the incredibly worthy content. I LOVE your videos! Thank you so very much ♥️
And sadly pays a price for that, once he made a presentation of his book at Google, asked the audience if they know the channel almost not a soul replied. Somehow, internet favors the fake and the pretentious over the straight-to-the-point people.
The market trend can turn around very quickly. In fact, the indexes often switch from a bear market to a bull market when the news is at its worst and the mood of investors is at its lowest point. I read an article of people that grossed profits up to $150k during this crash, what are the best stocks to buy now or put on a watchlist?
In particular, amid inflation, investors should exercise caution when it comes to their exposure and new purchases. It is only feasible to get such high yields during a recession with the guidance of a qualified specialist or reliable counsel.
True, initially I wasn't quite impressed with my gains, opposed to my previous performances, I was doing so badly, figured I needed to diverssify into better assets, I touched base with a portfolio-advisor and that same year, I pulled a net gain of 550k...that's like 7times more than I average on my own.
Great Down-to-Earth Examples nicely explained by someone who actually really looks like he wants to teach people. Best I came across! Keep it up and thanks a lot.
That's not counter party risk. If somehow when the time comes and the seller of the future/forward cannot deliver the product, that is counter party risk.
I’ve been in the financial services industry for almost a decade and I love how this man explains otherwise very complex instruments and concepts. I listen to it so that I can keep that concept in mind when explaining these concepts to clients. Great channel!
Love it! That's the best explanation I've heard about derivatives in ages. There was an old saying "no one born before 1970's understands what derivatives are..".
+Marketplace APM What's great about your explanations is that you don't rely on jargon. Most other tutorials will reference concepts as if you already know what they are. This is great for newbies. Thanks for this!
I enjoyed the story about Bruce Kovner reading "The history of Interest Rates" to get started. He was driving a cab in the seventies, borrowed three thousand on his card to get started. His shock at making forty thousand in two days, and losing thirty thousand on fruit commodities the third day.
You are literally the best finance professor i have ever listened to. I don't think i have ever told an individual this... Your diagrams are amazingly clear and i like how you use a diagram to explain the whole concept. You really know what your talking about and i can't say i was bored listening to this video one bit. Thanks for the great video! also i was wondering if it is possible if you could make a video on algorithms ?
@Ben Dreis Derivatives are supposed to give people a way to hedge against fluctuations of prices. For eg; the turkey may cost less than $15 in the future, and the forward contract they agreed upon would benefit the farmer, while Terry secures the turkeys for thanksgiving. Of course, using an options contract in this case would benefit Terry more, since he may choose not to accept the delivery of the turkey in the future if supply is plentiful and prices of turkey in the markets are below $15; in which case he forfeits the $50 he paid for the option and purchase the turkey from the market instead. Although useful as a tool for risk management, it can be used for speculation as well. Why the need for complication? Such contracts exists since the birth of capitalism, and many businesses are able to benefit from it. For example, if you run a restaurant, you would usually place orders for your inventory in advance at a slated price. This is similar to a forward contract. The only difference is that people discovered they can strike gold by gambling with these contracts.
I was looking for a wholesome description of what the derivatives market is, how it funcions, the scale and use of it, why it's several times larger than the combined net worth of the entire world, and why several people say it's extremely dangerous in it's current practice. This video provided me with the first half of what i was looking for. I'm now going to look through the other uploads of this channel to see if i find the rest, or anything else interresting. If anyone got a link, plz share
@Pet C It doesn't exactly make college obsolete if you are looking for a job, but it does greatly help if you are self-employed or running a business, increasing your knowledge!!
@Pat C Actually, if you bust your ass you can do an external PhD by just handing in an original dissertation. Professors have the ability to grant PhDs to people who have no previous degrees if they prove themselves competent enough on an "exception basis" (exception because nobody does this).
@@ptnibin123456 It does if you work on a portfolio of projects. No need for college. And I say that as a Mathematician. University is nice if you want structure and to be spoon-fed, but not at US prices. UK is borderline, getting shittier by the year (in terms of quality and in terms of the tuition hike that happened about a decade back). Germany is nice to leech in term of value and they'll happily bend over and subvention you with their insane taxes. US college is borderline fraud, I wouldn't even consider it. US universities I don't know, but the prices are still ludicrous.
Hi Patty, I'm scheduled to attend a seminar covering various aspects of Commodity Derivatives, and I was quite uninformed about it until watching this 10-minute session. I'm grateful for the insight it provided. Thanks bro!
The markets are still unsure if the Federal Reserve will continue to its plan to raise interest rates until inflation is under control, despite the fact that bond yields are rising while stock prices are falling. What is the greatest strategy to take advantage of the current bear market while I'm still deciding whether to sell my $401k worth of stocks?
For the average person, these techniques are rather demanding. In actuality, most professionals who have the necessary abilities and knowledge to complete such occupations do so successfully.
Working with a reputable investing coach is now the greatest market approach. Since a while ago, I've been in contact with a coach, mostly because I don't have the breadth of knowledge or mental fortitude to handle these recurrent market conditions. I made almost $700k during this downturn, demonstrating that the market is more complex than most people realize.
@@raymondbarnes5264 Due to the significant falls, I need advice on how to rebuild my portfolio and develop more successful tactics. Where can I find this coach?
@@helenoliver4838 My consultant is 'MARTHA ALONSO HARA" I found her on a CNBC interview where she was featured and reached out to her afterwards. You can look her up online, i basically follow her trade pattern.
It's only university level because high schools can't be bothered to teach this. Our economy would be in much better shape if people were financially literate. Thanks for the explanations, marketplace videos!
Very well explained through great examples, so that even a novice or beginner with no knowledge of financial jargons can understand ! I believe this is only possible, when one has extensive knowledge about his subject !
@kajtova yes. he paid 50 bucks for the option to buy 20 turkeys at 15 dollars before november 23. To execute the option he pays 20*15= 300 dollars and will receive 20 turkeys in return. Do realize that the contract for 300 dollars to Bailey's farm, was a futures contract. The difference between the options and futures contract is that buyer has already paid for the turkeys. In the options contract the buyer, has the option to buy the turkeys.
Very well explained , the whole system is an insane house of cards - and the roof and walls are made made of paper ,waiting for the perfect storm. Mean while , the farmers work their nuts off being the only valuable cogs in the machine.
This was seriously such a great video! I went from understanding little to nothing about derivatives to knowing the concept like the back of my hand! Thank you so much, you made quite a lot easier for me in terms of school. I'm definitely subbed!
This is very clear thank you. Question: is a normal purchase also a technically a derivative - I give you £1 and you write a note promising to give me a turkey, not in a year, but right now, not very useful but is it still a derivative? Is a loan a derivative - I give you £1, you promise to give me £1.50, in a year's time?
Paper currency is fiat, not really a derivative much less backed or supported by Gold; modern monetary theory among other scams have distorted & corrupted socio-economics.
@@doodad77 derivatives, derive their value from real assets, fiat money started as a derivative from gold today is supported by labour, taxes, oil and war..
@Harry Lagom Quickly, think about a prison economy. Cigarettes, snacks, com money, time. Their is a value to everything in prison that is scarce and people are not using gold to facilitate those transactions. Golds value is historic, because historically you can't make something scarce, someone will find a way to make a forgery or it ends up not really a scarce thing. The things that have value to different people are based strictly on their scarcity. and if nothing else was scarce: US dollars, Euros, Yuan, Bitcoin. If they ALL lost their scarcity, then yes I believe that Gold would be 700,000 times it's current value; because of it's incredible scarcity globally. But that's not going to happen unless we get another Carrington event, so I would not worry about it. Even if we had such an event look at the prison economy; would we be trading gold coins or would we be trading food and weapons? The ultra elite of a new world order would work with gold, we would not.
It appears that problems can also include a person that sells many contracts for the same underlying commodity- just as often happens with gold backed currency or gold certificates for gold that does not exist. Derivatives contracts appear to be like a form of paper currency that holds a value for a time, or gambling notes or both.
The thing is you have to pay a premium for the option. Say a stock is trading at $50. Clearly an option to purchase the stock (call option) at $45 will have a higher premium than an option with strike price $60. So if you pay $3 for a $45 call, and the stock is at $46 at the expiration date, you would exercise the option, but stil lose $2. Options are basically used either to hedge risk or to speculate. The speculation part can be potentially dangerous, especially when bought on margin.
The London interbank offer rate is an interest-rate benchmark for many other rates, from commercial loans to mortgages. Libor is also an important index for derivatives and is the most widely used interest rate in the world. Estimates of how much is tied to Libor vary from $350 trillion to $800 trillion. To put that in perspective, $350 trillion would pay for all U.S. government spending for 96 years. Turns out the LIBOR rate has be rigged. Major lawsuits are being filed.
Thanks for wonderful presentation..Can you please make vedio on types of swaps...ie. interest rate swap, currency swap, commodity swap and equity Index swap...
Wow, very well explain. thank you. The swap and Underling is when it becames complicated and there is not transparency. How many swaps can you make with one contract?
In this example, how would the option be a hedge against the $300 loss? If Farmer Bailey can't produce the turkeys or absconds, Terry is still out $300. He's spent $50 on the option, but still has to pay $350 to Farmer Jones. So he's lost $350, in this example. Is some detail missing?
Just spitballing… but I think Terry loses his “$50” option if he doesn’t exercise it (if he doesn’t spend a second $300 to get Turkeys from Jones). As far as Bailey goes… Terry has to file a lawsuit against Bailey for breach of contract and $300 in damages … and if Bailey is out of business, he is likely in line with many other creditors and may only collection 10 cents of every dollar in bankruptcy situation (if that!).
The Volcker Rule is a proposal that specifically prohibits a bank or institution that owns a bank from engaging in proprietary trading that is not at the behest of its clients, and from owning or investing in a hedge fund or private equity fund, as well as limiting the liabilities that the largest banks could hold.
I see that the video is a bit old, but I have one question if you can answer it. What if you want to activate the option and buy the turkeys from Mr.Jones, but he can't deliver them, or he delivers them two days later? The investment is not big enough to go to court about it, so how can you protect yourself from this kind of situation of failed option. Thanks.
Hello Mr Hirsch, I have a question: you stated that, when trading the contract, people aren't interested on what's underlying it. Yet, isn't it what's underlying it that actually set the value of the contract? Say if there was a bird flu disease, something that, in the village Mr. Bailey lives, never had experienced in 30 years. Suddenly everyone thinks it was a certainty that Mr. Bailey could not deliver all 30 turkeys at all (either the turkeys are sick or put to death) why would anyone trade a contract if what's underlying it was next to nonexistent?
Question: If Mr Bailey’s farm goes out of business and Terry is stuck with a contract that cost him $300 (20 turkeys @ $15 = $300)…. does Terry “generally” have any viable recourse like getting a judgment/lien against Bailey Farms (I.E. the farm land & turkey farm houses etc. ect)? I’m presuming Terry can sue Bailey Farms but the expense of bringing suit doesn’t mean there is collection… So I guess my question is how “collateralized” are Derivative contracts in general for the person, in this case Terry putting up the $300.00? Awesome - video, great illustration
Can individuals use any of these 3 options? For example, if i'd like to loan someone money, could I create a forward/option to ensure that I get it back?
Question: At 3:49, what do you mean by "hedge" the contract? Are you saying Terry is choosing to pay an additional $50 to Mr. Jones to ensure that the outcome of interest (or the underlying asset which is having 20 turkeys) will in fact occur? That is, he is reducing (or in this case, eliminating) the risk of not having the turkeys prior to Thanksigiving because he will get it from Mr. Bailey (without certainty) or from Mr. Jones (with certainty and additional cost of $50)? That is the way I am understanding this term. Is there something I misconnecting?
A hedge protects against certain risks of your position. A common form of “hedge” is insurance. Taking out car insurance hedges against the risk of losing your car. You’ve probably heard of hedge funds, they are a specific type of mutual fund that tries to hedge against a form of risk, often risks associated with the market as a whole. A good hedge fund will stay stable or even grow while the market as a whole declines.
You briefly mentioned “the derivative exchanges in japan” and now that you mention that, most derivative exchanges I am aware of, except for CME, are often based in Japan or China. Do you have any content going into this a bit more- sort of the regulations and that of the derivative exchange markets...I am interested in that whole history of how that came to be...I suspect this is why Japan and China are such a hot bed for cryptocurrency markets, which are largely perpetual swaps.
The smartest people explain things in the simplest terms.
John Childs ...yes, he is very good....I say this as someone with post graduate degrees in this stuff, and I really enjoyed his explanations!
I wouldn’t say the ‘smartest people.’ I would say one who truly understands something can explain it in simple terms.
ooOOOhhh, I get it!
@@onenationunderduress8994 Or ones that are simply good at educating.
Monetized contracts
You're arguably the only person on TH-cam who doesn't waste even a nanosecond to advertise his channel and gets right into the incredibly worthy content. I LOVE your videos! Thank you so very much ♥️
Antares 555 FYI: Dr Berg is the same....
His videos are from the golden age of Youtubr. This stuff really wasn't common back then.
so true
If you like this you'll like Kai Rysdall and the Marketplace team every weekday
And sadly pays a price for that, once he made a presentation of his book at Google, asked the audience if they know the channel almost not a soul replied.
Somehow, internet favors the fake and the pretentious over the straight-to-the-point people.
I have listened to about five different lecturers without understanding what derivative is but this is the one that has been explained smartly.
The market trend can turn around very quickly. In fact, the indexes often switch from a bear market to a bull market when the news is at its worst and the mood of investors is at its lowest point. I read an article of people that grossed profits up to $150k during this crash, what are the best stocks to buy now or put on a watchlist?
In particular, amid inflation, investors should exercise caution when it comes to their exposure and new purchases. It is only feasible to get such high yields during a recession with the guidance of a qualified specialist or reliable counsel.
True, initially I wasn't quite impressed with my gains, opposed to my previous performances, I was doing so badly, figured I needed to diverssify into better assets, I touched base with a portfolio-advisor and that same year, I pulled a net gain of 550k...that's like 7times more than I average on my own.
I’ve been down a ton, I’m only holding on so I can recoup, I really need help, who is this investment-adviser that guides you?
Her name is “Sonya Lee Mitchell” can't divulge much. Most likely, the internet should have her basic info, you can research if you like
I have googled her and she has impressive credentials; I reached out to her since I need all the assistance I can get. I just scheduled a caII.
Great Down-to-Earth Examples nicely explained by someone who actually really looks like he wants to teach people. Best I came across! Keep it up and thanks a lot.
totally agree....this guy is a great teacher
So true! You know Ray Diallo (?) and Steve Ackman are pretty good too.
great explanation. So basically the counter party risk regarding derivatives are that underlying assets can be worth a lot less at a later date.
That's not counter party risk. If somehow when the time comes and the seller of the future/forward cannot deliver the product, that is counter party risk.
I’ve been in the financial services industry for almost a decade and I love how this man explains otherwise very complex instruments and concepts. I listen to it so that I can keep that concept in mind when explaining these concepts to clients. Great channel!
Luke Daly We’re everywhere! Lol
Love it! That's the best explanation I've heard about derivatives in ages. There was an old saying "no one born before 1970's understands what derivatives are..".
+Marketplace APM What's great about your explanations is that you don't rely on jargon. Most other tutorials will reference concepts as if you already know what they are. This is great for newbies. Thanks for this!
Sir , you are a champion . The world needs teachers like you . Kudos to the videos !!
I am only 13 and I understood everything in your video! You are amazing at explaining economics!
This is the best explanation I have ever come across. Well done
I was looking for calculus, but...I think I'll start a drug empire now; thanks!
lmao nice one
I'm going for a Turkey empire myself. I'm going to RULE Thanks Giving!
MrOmniblast 😂😂😂
lmfao
Notice how 300 is mentioned and in the second example 20 "times" 15 is the same. How cool is that.
i was reeling badly and needing a drink trying to understand wall street until i stumbled upon this legend, thank you good sir!
I enjoyed the story about Bruce Kovner reading "The history of Interest Rates" to get started. He was driving a cab in the seventies, borrowed three thousand on his card to get started. His shock at making forty thousand in two days, and losing thirty thousand on fruit commodities the third day.
Even 10 years later I learned more economics from watching a few of these videos than all of my years in high school.
I love it when he tosses the maker. beautifully well explained. #dropthemic.
Watching this is refreshing in 2023. Amazing stuff
You are literally the best finance professor i have ever listened to. I don't think i have ever told an individual this... Your diagrams are amazingly clear and i like how you use a diagram to explain the whole concept. You really know what your talking about and i can't say i was bored listening to this video one bit.
Thanks for the great video! also i was wondering if it is possible if you could make a video on algorithms ?
@Ben Dreis Derivatives are supposed to give people a way to hedge against fluctuations of prices. For eg; the turkey may cost less than $15 in the future, and the forward contract they agreed upon would benefit the farmer, while Terry secures the turkeys for thanksgiving. Of course, using an options contract in this case would benefit Terry more, since he may choose not to accept the delivery of the turkey in the future if supply is plentiful and prices of turkey in the markets are below $15; in which case he forfeits the $50 he paid for the option and purchase the turkey from the market instead. Although useful as a tool for risk management, it can be used for speculation as well. Why the need for complication? Such contracts exists since the birth of capitalism, and many businesses are able to benefit from it. For example, if you run a restaurant, you would usually place orders for your inventory in advance at a slated price. This is similar to a forward contract. The only difference is that people discovered they can strike gold by gambling with these contracts.
He , Mr Hirsch , knows his trade and has the charisma of transmitting his knowledge to his auditor.
Your Confidence and communication are awesome, Paddy
I was looking for a wholesome description of what the derivatives market is, how it funcions, the scale and use of it, why it's several times larger than the combined net worth of the entire world, and why several people say it's extremely dangerous in it's current practice.
This video provided me with the first half of what i was looking for. I'm now going to look through the other uploads of this channel to see if i find the rest, or anything else interresting. If anyone got a link, plz share
Thank you for making this video. I totally truly have a better understanding on how derivatives work now. Nicely done!.
Who cares about student fees,you can learn anything for free.
Thanks
The web, YT should technically make college obsolete.
@Pet C It doesn't exactly make college obsolete if you are looking for a job, but it does greatly help if you are self-employed or running a business, increasing your knowledge!!
@Pat C Actually, if you bust your ass you can do an external PhD by just handing in an original dissertation. Professors have the ability to grant PhDs to people who have no previous degrees if they prove themselves competent enough on an "exception basis" (exception because nobody does this).
@@ptnibin123456 It does if you work on a portfolio of projects. No need for college. And I say that as a Mathematician.
University is nice if you want structure and to be spoon-fed, but not at US prices.
UK is borderline, getting shittier by the year (in terms of quality and in terms of the tuition hike that happened about a decade back). Germany is nice to leech in term of value and they'll happily bend over and subvention you with their insane taxes. US college is borderline fraud, I wouldn't even consider it. US universities I don't know, but the prices are still ludicrous.
I read two books about this, and it seemed so complicated to me. You made it easy .Thanks for the explanation
I watched seven minutes before realizing this isn't about math derivatives...
This is the same concept of a derivative. It's the change of the underlying asset over time.
No F’(x) here.
Superb explanation just under 11 minutes which need whole day to learn in class.
Hi Patty, I'm scheduled to attend a seminar covering various aspects of Commodity Derivatives, and I was quite uninformed about it until watching this 10-minute session. I'm grateful for the insight it provided. Thanks bro!
Excellent explanation! This is the first time I have seen this derivative problem explained in such detail. Thank you.
Will always think of turkeys now when I think of derivatives. Thanks for the simple and fantastic explanation!
The markets are still unsure if the Federal Reserve will continue to its plan to raise interest rates until inflation is under control, despite the fact that bond yields are rising while stock prices are falling. What is the greatest strategy to take advantage of the current bear market while I'm still deciding whether to sell my $401k worth of stocks?
For the average person, these techniques are rather demanding. In actuality, most professionals who have the necessary abilities and knowledge to complete such occupations do so successfully.
Working with a reputable investing coach is now the greatest market approach. Since a while ago, I've been in contact with a coach, mostly because I don't have the breadth of knowledge or mental fortitude to handle these recurrent market conditions. I made almost $700k during this downturn, demonstrating that the market is more complex than most people realize.
@@raymondbarnes5264 Due to the significant falls, I need advice on how to rebuild my portfolio and develop more successful tactics. Where can I find this coach?
@@helenoliver4838 My consultant is 'MARTHA ALONSO HARA" I found her on a CNBC interview where she was featured and reached out to her afterwards. You can look her up online, i basically follow her trade pattern.
@@raymondbarnes5264 Found her webpage. I wrote her a message, hopefully she responds, I plan for this 2023 to be my year of financial success.
Great analogy and very clear intro to derivatives!
finally found a true comment, instead of attention seeking dandies, in a vain effort of trying to spark off wit and sarcasm .
These are some of the best explanations I have ever heard
It's only university level because high schools can't be bothered to teach this. Our economy would be in much better shape if people were financially literate.
Thanks for the explanations, marketplace videos!
This is how you teach- simple and applicable. Thanks for the video.
Very well explained through great examples, so that even a novice or beginner with no knowledge of financial jargons can understand ! I believe this is only possible, when one has extensive knowledge about his subject !
I've watched many videos and this is the best explanation yet. Very well done. You're appreciated and keep it up
@kajtova yes.
he paid 50 bucks for the option to buy 20 turkeys at 15 dollars before november 23.
To execute the option he pays 20*15= 300 dollars and will receive 20 turkeys in return.
Do realize that the contract for 300 dollars to Bailey's farm, was a futures contract. The difference between the options and futures contract is that buyer has already paid for the turkeys. In the options contract the buyer, has the option to buy the turkeys.
Terry is now a vegetarian.
Very well explained , the whole system is an insane house of cards - and the roof and walls are made made of paper ,waiting for the perfect storm.
Mean while , the farmers work their nuts off being the only valuable cogs in the machine.
Thanks so much. I wish ppl like you success in TH-cam
You have always been able to explain things succinctly and hold my interest. I've been enjoying this entire series.
Well explained and a very simple example to understand. Couldn't believe this is a decade old video.
Amazing clarity and great ability to impart knowledge. Superb delivery . Thanks
This was seriously such a great video! I went from understanding little to nothing about derivatives to knowing the concept like the back of my hand! Thank you so much, you made quite a lot easier for me in terms of school. I'm definitely subbed!
Binge watching these wonderful videos. Paddy Hirsch and chill.
I am proud of you. You help me understand how derivatives work. Thank you!
This is very clear thank you. Question: is a normal purchase also a technically a derivative - I give you £1 and you write a note promising to give me a turkey, not in a year, but right now, not very useful but is it still a derivative? Is a loan a derivative - I give you £1, you promise to give me £1.50, in a year's time?
paper money is a derivative of gold, derivatives are nothing but promises bets and insurances.
Paper currency is fiat, not really a derivative much less backed or supported by Gold; modern monetary theory among other scams have distorted & corrupted socio-economics.
@@doodad77 derivatives, derive their value from real assets, fiat money started as a derivative from gold today is supported by labour, taxes, oil and war..
Harry Lagom
Or maybe gold is 700x undervalued?
70,000x undervalued
@Harry Lagom Quickly, think about a prison economy. Cigarettes, snacks, com money, time. Their is a value to everything in prison that is scarce and people are not using gold to facilitate those transactions.
Golds value is historic, because historically you can't make something scarce, someone will find a way to make a forgery or it ends up not really a scarce thing.
The things that have value to different people are based strictly on their scarcity. and if nothing else was scarce: US dollars, Euros, Yuan, Bitcoin. If they ALL lost their scarcity, then yes I believe that Gold would be 700,000 times it's current value; because of it's incredible scarcity globally.
But that's not going to happen unless we get another Carrington event, so I would not worry about it. Even if we had such an event look at the prison economy; would we be trading gold coins or would we be trading food and weapons? The ultra elite of a new world order would work with gold, we would not.
Is it me or this guy is the best teacher in the world ?!!!!
This is so greatly explained! Your page has become my go-to as I’m trying to understand these terms. Thank you!
Me too
Fantastic explanation. Clear, succinct, and enjoyable! Thanks.
Great explanation as usual. Please come back!
It was a great intro for financial illiterate like me. Thanks so much.
This was really easy to understand. Thank you for simplifying it so much!
Really well done and expertly narrated.
Really enjoying these white board lessons. Thank you for sharing!
thanks alot, you are amazing at explaining something that everyone else makes so complicated.
Appreciation from Canada for your easy to understand video. Thumbs up .
It appears that problems can also include a person that sells many contracts for the same underlying commodity- just as often happens with gold backed currency or gold certificates for gold that does not exist.
Derivatives contracts appear to be like a form of paper currency that holds a value for a time, or gambling notes or both.
The thing is you have to pay a premium for the option. Say a stock is trading at $50. Clearly an option to purchase the stock (call option) at $45 will have a higher premium than an option with strike price $60. So if you pay $3 for a $45 call, and the stock is at $46 at the expiration date, you would exercise the option, but stil lose $2. Options are basically used either to hedge risk or to speculate. The speculation part can be potentially dangerous, especially when bought on margin.
you are a really talented teacher
The London interbank offer rate is an interest-rate benchmark for many other rates, from commercial loans to mortgages. Libor is also an important index for derivatives and is the most widely used interest rate in the world. Estimates of how much is tied to Libor vary from $350 trillion to $800 trillion. To put that in perspective, $350 trillion would pay for all U.S. government spending for 96 years. Turns out the LIBOR rate has be rigged. Major lawsuits are being filed.
I will have to watch this a couple of times. When I am not settled with an evenings beer!
Thanks for wonderful presentation..Can you please make vedio on types of swaps...ie. interest rate swap, currency swap, commodity swap and equity Index swap...
Wow, very well explain. thank you. The swap and Underling is when it becames complicated and there is not transparency.
How many swaps can you make with one contract?
Very simple and smooth !! keep them coming please
WOW!!! Thank you so much for explaining that in a simplified way that's easy to understand
I am Sincerely grateful for your teaching methods.... Thank you!
The explanation is so clear, I even had an “aha” moment. Thank you very much
Bro you smashed that explanation!
Does anyone know what is the managerial discipling theory of hostile takeovers? thanks
was expecting a calculus explanation. I'm still happy I clicked
In this example, how would the option be a hedge against the $300 loss? If Farmer Bailey can't produce the turkeys or absconds, Terry is still out $300. He's spent $50 on the option, but still has to pay $350 to Farmer Jones. So he's lost $350, in this example.
Is some detail missing?
Just spitballing… but I think Terry loses his “$50” option if he doesn’t exercise it (if he doesn’t spend a second $300 to get Turkeys from Jones).
As far as Bailey goes… Terry has to file a lawsuit against Bailey for breach of contract and $300 in damages … and if Bailey is out of business, he is likely in line with many other creditors and may only collection 10 cents of every dollar in bankruptcy situation (if that!).
The Volcker Rule is a proposal that specifically prohibits a bank or institution that owns a bank from engaging in proprietary trading that is not at the behest of its clients, and from owning or investing in a hedge fund or private equity fund, as well as limiting the liabilities that the largest banks could hold.
I see that the video is a bit old, but I have one question if you can answer it. What if you want to activate the option and buy the turkeys from Mr.Jones, but he can't deliver them, or he delivers them two days later? The investment is not big enough to go to court about it, so how can you protect yourself from this kind of situation of failed option. Thanks.
I love how the innocent marker gets tossed about at the end of videos. Great exit strategy!
How I wish I had not wasted all my time reading books and instead just subscribed to this channel.
very easy to understand and a clear example! thanks!!!
Hello Mr Hirsch, I have a question:
you stated that, when trading the contract, people aren't interested on what's underlying it. Yet, isn't it what's underlying it that actually set the value of the contract?
Say if there was a bird flu disease, something that, in the village Mr. Bailey lives, never had experienced in 30 years. Suddenly everyone thinks it was a certainty that Mr. Bailey could not deliver all 30 turkeys at all (either the turkeys are sick or put to death)
why would anyone trade a contract if what's underlying it was next to nonexistent?
Very Very good explanation of the term Derivative. Thank you.
Question: If Mr Bailey’s farm goes out of business and Terry is stuck with a contract that cost him $300 (20 turkeys @ $15 = $300)…. does Terry “generally” have any viable recourse like getting a judgment/lien against Bailey Farms (I.E. the farm land & turkey farm houses etc. ect)? I’m presuming Terry can sue Bailey Farms but the expense of bringing suit doesn’t mean there is collection…
So I guess my question is how “collateralized” are Derivative contracts in general for the person, in this case Terry putting up the $300.00?
Awesome - video, great illustration
Well explained thanks for showcasing your great teaching concepts
Excellent presentation
Can individuals use any of these 3 options? For example, if i'd like to loan someone money, could I create a forward/option to ensure that I get it back?
This was great, thanks for explain this sort of vague concept in a way I fully understand now
I love how you get right into the incredibly amazing content. Your videos are amazing! Thank you very much
Well explained. Best teacher
Question:
At 3:49, what do you mean by "hedge" the contract? Are you saying Terry is choosing to pay an additional $50 to Mr. Jones to ensure that the outcome of interest (or the underlying asset which is having 20 turkeys) will in fact occur?
That is, he is reducing (or in this case, eliminating) the risk of not having the turkeys prior to Thanksigiving because he will get it from Mr. Bailey (without certainty) or from Mr. Jones (with certainty and additional cost of $50)?
That is the way I am understanding this term. Is there something I misconnecting?
A hedge protects against certain risks of your position. A common form of “hedge” is insurance. Taking out car insurance hedges against the risk of losing your car.
You’ve probably heard of hedge funds, they are a specific type of mutual fund that tries to hedge against a form of risk, often risks associated with the market as a whole. A good hedge fund will stay stable or even grow while the market as a whole declines.
Very good and simple explanation!
Thanks bod...
Great clear explanation as usual
so how is money involved if you have a derivative with weather underlying the contract?
Amazing. Real Good Simple Example. A BIG THUMB’s up. Wondering (wishing) if you have videos on financial markets / Trade Life cycle e.t.c
Absolutely brilliant. Thanks man.
You briefly mentioned “the derivative exchanges in japan” and now that you mention that, most derivative exchanges I am aware of, except for CME, are often based in Japan or China. Do you have any content going into this a bit more- sort of the regulations and that of the derivative exchange markets...I am interested in that whole history of how that came to be...I suspect this is why Japan and China are such a hot bed for cryptocurrency markets, which are largely perpetual swaps.
Brilliant teacher, super choices of examples and injection of some humour.
Great lecture...thanx.i now understand the concepts...
that's great teaching, I wish you kept with the videos
Thank you, I was so confuses about derivative
Thanks for the simple explanation!