Our financial system is crumbling this week.

[maddash]

Can someone explain how things like put and call options or short selling is not gambling? I know they're there to help you "hedge" your investment, but the fact is that they don't seem to do a very good job of that. Do they serve some purpose of controlling the market? If so, what do they do?

[cpebbles]

Can someone explain how things like put and call options or short selling is not gambling?

We don't call them "gambling" and they're legal everywhere.

[Michael]

Can someone explain how things like put and call options or short selling is not gambling? I know they're there to help you "hedge" your investment, but the fact is that they don't seem to do a very good job of that. Do they serve some purpose of controlling the market? If so, what do they do?

It a relatively cheap way to hedge or speculate based on market conditions. Why don't they seem to be very good at hedging positions?

For speculators it's a calculated risk. Some might call that gambling, but I don't see it that way.

[AWvsCBsteeeerike3]

For speculators, it's a calculated risk. Some might call that gambling, but I don't see it that way.

Yeah. It's like betting $50 on the Tigers at -150 to win the WS in '06 when you've got $25 on the Cardinals at +800. You're guaranteed to win some money!!

[maddash]

Can someone explain how things like put and call options or short selling is not gambling? I know they're there to help you "hedge" your investment, but the fact is that they don't seem to do a very good job of that. Do they serve some purpose of controlling the market? If so, what do they do?

It a relatively cheap way to hedge or speculate based on market conditions. Why don't they seem to be very good at hedging positions?

For speculators it's a calculated risk. Some might call that gambling, but I don't see it that way.

I'm a novice at all this, so maybe I'm not understanding how they really work. But here's what I think I know.

You're betting against yourself, so to speak. I guess it comes down to a different set of investment philosophies - long versus short, investment versus speculation - but if you're using put options for hedging, you're playing the short game and investing in stocks you're not confident in. You're also betting against the clock, and trying to gauge market directing in limited time frame. Even the experts have trouble doing this.

[Michael]

You're betting against yourself, so to speak. I guess it comes down to a different set of investment philosophies - long versus short, investment versus speculation - but if you're using put options for hedging, you're playing the short game and investing in stocks you're not confident in. You're also betting against the clock, and trying to gauge market directing in limited time frame. Even the experts have trouble doing this.

If I'm a hedger and I short a product, that means I have too much exposure (risk) to that product (like oil) and I want to soften the blow if the market moves against me. Additionally, If I'm hedger buying a call vs a put depends on the prices for the strikes, and what I'm looking to do. Hedgers make no attempt to predict the market, only speculators try to predict the market. Their only function is to reduce risk.

[AWvsCBsteeeerike3]

so, how exactly do you short a stock and how do you make money/lose money?

[jim]

so, how exactly do you short a stock and how do you make money/lose money?

.... it's really pretty complicated but essentially if you short something you make money if it goes down, and lose money if it goes up.

[AWvsCBsteeeerike3]

.... it's really pretty complicated but essentially if you short something you make money if it goes down, and lose money if it goes up.

Thanks, smart ass

But, what are the technicalities. Obviously, you can't buy a stock and hope it goes down. So, if you knew that Microsoft was going to go down tomorrow and you wanted to make money, what actions would you take?

[Arthur Dent]

But, what are the technicalities. Obviously, you can't buy a stock and hope it goes down. So, if you knew that Microsoft was going to go down tomorrow and you wanted to make money, what actions would you take?

You pay a fee to borrow the stock from a broker and immediately sell it, then you wait till the price drops, buy it back and return it to the broker.