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.
You're arguably the only person on RUclips 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 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.
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.
@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.
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.
+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!
What if Mr Bailey takes in 4 contracts and only has enough turkeys for 3 contracts? Mr Bailey hedges that one or more of the prepaid contracts will bail and not need the turkeys at all... Then what happens? Mr Bailey is in breech of contract, but there are not enough turkeys to fill all the contracts. Looks like KFC wins on Thanksgiving.
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.
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...
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?
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!
In the Second case, Where he buys option from Jones, If Bailey did fail to deliver him 20 turkeys @15$ for Thanksgiving. Would Mr. Bailey be returning those 300$ to me? and I can use those 300$ to pay Jones. So I'd be paying 350$, but I get my 20 Turkeys anyway.
Great question! I had the same question and found yours… Sorry there is not any good responses yet. I’m presuming if Bailey is out of business it is likely because he is “leveraged” up to his eyeballs. I am presuming there is no “collateral taken” when Terry hands over the $300 for his turkeys… and thus he has to get in line with the other creditors. So he is behind the bank who forecloses on the land/farm and there is nothing left of Bailey Farms LLC. Mr Bailey’s personal assets (his lake house) are protected as the LLC is “on the hook” since that is the entity the contract is with… So Bailey, who made a fortune in the Turkey business for years - enjoys early retirement without ever having to pay Terry back. This is the risk Terry takes for ensuring a fair price on Turkeys… with option to sell his contract in markets where it profitable. Hopefully someone else with better general knowledge can comment on whether these derivative contracts are typically “collateralized” and if so to what degree.
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!).
Terry will get his turkeys from Bailey farm on the date they agreed on, unless the farm goes bankrupt and can't deliver. If he had entered an option agreement with Jones farm, he can get his turkeys from there instead should Bailey farm be unable to deliver.
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.
Considering emotional buying and nation state communications attacks. How about the differentiation calculus derivative that shuts off the stock exchanges if an attack happens on the stockmarket by web attack because the pentagon can cut off the web having total spectral dominance. Same with election integrity.
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.
@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.
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..".
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
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.
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!
@Linfone They used to be called contracts but I think what is happening now is the government is paying companies to hold them in perpetuity. Also how come after all the bailouts QE2 almost none of the derivatives are gone. It's like they never go bad. Lotto tickets go bad and so should derivatives. Someone is holding a lot of bad lotto tickets and they want taxpayers to pay for them. I say eat your losses even if they are 1.2 quadrillion.
@FlyingNinja11 HAHA, Mate your comment is so wrong on so many levels... "I hope trading gets banned" seriously? you hope that our civilization will collapse? you do know that when you go to a shop and buy a loaf of bread, that is the essence of trading. Next one "Only cash purchases must be allowed" really? so we should have no CREDIT? so if i want to buy say 10 cars and start a taxi company, but i only have funds for 1 car, then that means i can not start my own company? think about that...
Because of... RISK. The option provides you the option to either buy or sell a bunch of stocks at an appointed price. By the time this contract expires, the ACTUAL value on the market could be either HIGHER or LOWER. That's why not everybody is purchasing options instead of stocks at market value. Hence why options are risky financial products and have very bad potential (this market contributed a lot to the current credit crunch).
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.
Wrong. Futures and options are not derivatives, because those contracts have deliverable assets with intrinsic value. A real derivative has no intrinsic value. A real derivative contract has no intrinsic value...it's price is based on the underlying commodity ,stock, interest rate. ..and so on ...nothing more. Contract expires buyer or seller do not exchange nothing. A derivative is basically a gambling instrument based on only price. They are not legally traded, nor regulated.
@contemporarymonk is it....will this system not crash and burn eventually....all your doing by participating is passing the buck....id rather not condem my children and grandchildren to a life of hardship when I can face it now. I wonder who will be subject to paying the price for the greed of the few. unluckily I am not in the position to benifit off something like this...but we do need change, and its not coming from the governments
@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.
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.
I still don't understand the concept of derivatives. With options, does a contract give you the right to buy any stock for a much cheaper price than the market price? Why doesn't everybody just buy options instead of stocks at market value if this is the case?
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?
Derivatives are today used for mostly manipulated bets on anything. The good thing for the financial industry is: if the betting goes wrong, the big players will be bailed out = FREE LOTTERY!
I’d like the option to buy 20 human beings instead of 20 turkeys, please. Sentient beings and all things being equal with vertebrate and nervous system‘s. Still wondering Why other nonhuman species with a right to be on earth are turned into commodities. Alas, still lots of human slavery, indentured servitude. Humans certainly take the cake for exploitation. and how ingrained it is in just a simple explanation of derivatives.… Lol. That’s how inculcated and indoctrinated we are as a human race. Buying and selling the lives of others.
hmm...very nice video! thank you. I wonder if Derivatives are allowed in Islam.... I have to do my research now :P. I dont think its allowed since it essentially is a form of gambling..
the other turkey farmer, mr. jones, what if he fails as well? so we lose both 300 and 50? and if we need to buy the turkey from him, then we will pay 350 for the 20 turkeys? thank you!
Eliminate buying and selling these contracts would make the original deal meaningful. You take the risk, you get the reward. Period. No selling the reward at discount (or profit). Just fulfill the original contract and move on. End the paper-chase and all the gambling!
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 ?
You could be exposed to great losses when you've purchased a TON of options to buy turkeys for the price of $15 when they're worth $10 conform the market.
The amount of money that can be directly or indirectly associate with these derivatives is scary.. Once that initial contact is formed then there could be 10s or hundreds of sub-ciontracts also..An initial contract of say £1000 could end up with a sub derivative network of hundreds if nit millions of dollars associated to it ..Its only a matter of time before it self destructs..
Jumps straight from grade school foolishness with turkeys to vague and totally unexplained glossing over of derivatives based on "other stuff". How the hell do you buy and sell the weather? How about a bit more detail on this business of betting on interest rates? How about something on credit default swaps and how they let a few savvy investors make a fortune on the collapse of the world economy? What a waste of 10 minutes.
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?
I appreciate your approach to teaching. I've been quite unsure about investing in this current market and at the same time I feel it's the best time to get started on the market, heard some guy speaking of making over $1.3m from a $300k capital since the pandemic and I'm driven to ask what skillet and strategy can generate such profit
Find stocks with market-beating yields and shares that at least keep pace with the long term market trend. However, for a successful long- term strategy you have to seek guidance from a financial advisor.
I'm sure the idea of a Investment Adviser might sound controversial to a few, but a new study by investopedia found out that demand for Asset-Managers sky-rocketed by over 41.8% since the pandemic and based on firsthand encounter I can say for certain their skillsets are topnotch. I've raised over $580k within 18months from an initially stagnant portfolio worth $150K which was devoid of dividend stocks.
@@peterson2300 That's impressive! I could really use the expertise of this advisor, my portfolio has been down bad.... Please do recommend a verifiable inv - adviser it would be most helpful
@@ron04 I've shuffled through investment-advisers in the past and so far “ Donna Lorraine Judge” has proven to be the most productive and well grounded, she has quite an audience so you can easily just reach her on the web to gain access to her, just look-the name up
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 explain it like this, "They" created paper out of thin air, then to sell portion of that paper with interest as payback. The purchaser of the paper then say this is real money and goes to next buyer (lets say) sell it in a house mortgages. Its theft, as it was only printed air paper contract . The problem if it collapse , In bankruptcy the derivative has super authority to be payed off first (except taxes). The home owner would have to come up with cash to pay mortgage in full or loose the house. Look under bankruptcy law!
If the money was held in escrow until the turkeys are delivered, it would eliminate the counter party risk. If you don't get the promised turkeys, they original amount would be returned to the contract holder.
I'm a creative watching this hoping to learn more about finance and all I see is the stick mans arms are far too low down on his stickman body. It's all I see. Stupid left brain...
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.
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 RUclips 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.
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.
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.
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.
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.
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.
Terry is now a vegetarian.
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 love it when he tosses the maker. beautifully well explained. #dropthemic.
This is the best explanation I have ever come across. Well done
+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!
Awesome review , excellent explanations. Thankyou 👍🏻👌🏻👏🏻👏🏻👏🏻 👋 🇦🇺
Love your videos, but afraid I will end up as an alcoholic...
What if Mr Bailey takes in 4 contracts and only has enough turkeys for 3 contracts? Mr Bailey hedges that one or more of the prepaid contracts will bail and not need the turkeys at all... Then what happens? Mr Bailey is in breech of contract, but there are not enough turkeys to fill all the contracts. Looks like KFC wins on Thanksgiving.
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.
I am only 13 and I understood everything in your video! You are amazing at explaining economics!
Budddy: you are teaching to yourself. SLOW DOWN!! I was a teacher and you have to give a little time to let what you are teaching to sink in
Even 10 years later I learned more economics from watching a few of these videos than all of my years in high school.
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...
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?
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
When really the farmer should say "Piss off, get in line like everybody else, you twat".
Does anyone know what is the managerial discipling theory of hostile takeovers? thanks
I have listened to about five different lecturers without understanding what derivative is but this is the one that has been explained smartly.
In the Second case, Where he buys option from Jones, If Bailey did fail to deliver him 20 turkeys @15$ for Thanksgiving. Would Mr. Bailey be returning those 300$ to me? and I can use those 300$ to pay Jones. So I'd be paying 350$, but I get my 20 Turkeys anyway.
Great question! I had the same question and found yours… Sorry there is not any good responses yet.
I’m presuming if Bailey is out of business it is likely because he is “leveraged” up to his eyeballs. I am presuming there is no “collateral taken” when Terry hands over the $300 for his turkeys… and thus he has to get in line with the other creditors.
So he is behind the bank who forecloses on the land/farm and there is nothing left of Bailey Farms LLC.
Mr Bailey’s personal assets (his lake house) are protected as the LLC is “on the hook” since that is the entity the contract is with… So Bailey, who made a fortune in the Turkey business for years - enjoys early retirement without ever having to pay Terry back.
This is the risk Terry takes for ensuring a fair price on Turkeys… with option to sell his contract in markets where it profitable.
Hopefully someone else with better general knowledge can comment on whether these derivative contracts are typically “collateralized” and if so to what degree.
Thank you for making this video. I totally truly have a better understanding on how derivatives work now. Nicely done!.
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
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 whole turkey thing made it more confusing
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 .
We keep watching videos on trading while others make huge profit o daily basis?
Grow some balls to throw some money on it
Exactly the point. I wish I could convert my comments to earnings
@@themoon8457 you can always say that again. Wish without working is always a dream that won't come through.
Forex trading has been my major source of income aside my work.
I make huge profit from trading with the assistance of Mr harper James
Terry will get his turkeys from Bailey farm on the date they agreed on, unless the farm goes bankrupt and can't deliver.
If he had entered an option agreement with Jones farm, he can get his turkeys from there instead should Bailey farm be unable to deliver.
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.
Considering emotional buying and nation state communications attacks.
How about the differentiation calculus derivative that shuts off the stock exchanges if an attack happens on the stockmarket by web attack because the pentagon can cut off the web having total spectral dominance. Same with election integrity.
Couldn't you explain it easier by just stating it is basically a Pre-Order? Pre ordering GTA 5, not
Never trust someone called Bailey
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.
Sir , you are a champion . The world needs teachers like you . Kudos to the videos !!
@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.
Awesome explanation! Interested in Personal Finance and investing. New to your channel!! Liked and subscribed!! 😎
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..".
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
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.
Watching this is refreshing in 2023. Amazing stuff
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 problem comes in if Mr. Jones has a bad year and was depending on Mr. Bailey for the turkeys and he had a bad year as well.
Then we all have a bad decade 😏
@Linfone
They used to be called contracts but I think what is happening now is the government is paying companies to hold them in perpetuity. Also how come after all the bailouts QE2 almost none of the derivatives are gone. It's like they never go bad. Lotto tickets go bad and so should derivatives. Someone is holding a lot of bad lotto tickets and they want taxpayers to pay for them. I say eat your losses even if they are 1.2 quadrillion.
@FlyingNinja11 HAHA, Mate your comment is so wrong on so many levels... "I hope trading gets banned" seriously? you hope that our civilization will collapse? you do know that when you go to a shop and buy a loaf of bread, that is the essence of trading. Next one "Only cash purchases must be allowed" really? so we should have no CREDIT? so if i want to buy say 10 cars and start a taxi company, but i only have funds for 1 car, then that means i can not start my own company? think about that...
Because of... RISK. The option provides you the option to either buy or sell a bunch of stocks at an appointed price. By the time this contract expires, the ACTUAL value on the market could be either HIGHER or LOWER. That's why not everybody is purchasing options instead of stocks at market value. Hence why options are risky financial products and have very bad potential (this market contributed a lot to the current credit crunch).
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.
Wrong. Futures and options are not derivatives, because those contracts have deliverable assets with intrinsic value. A real derivative has no intrinsic value. A real derivative contract has no intrinsic value...it's price is based on the underlying commodity ,stock, interest rate. ..and so on ...nothing more. Contract expires buyer or seller do not exchange nothing. A derivative is basically a gambling instrument based on only price. They are not legally traded, nor regulated.
@contemporarymonk is it....will this system not crash and burn eventually....all your doing by participating is passing the buck....id rather not condem my children and grandchildren to a life of hardship when I can face it now. I wonder who will be subject to paying the price for the greed of the few. unluckily I am not in the position to benifit off something like this...but we do need change, and its not coming from the governments
@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.
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.
Best to just go and buy the Turkeys when you need them, and negotiate a discount on 10.
I still don't understand the concept of derivatives. With options, does a contract give you the right to buy any stock for a much cheaper price than the market price? Why doesn't everybody just buy options instead of stocks at market value if this is the case?
this is teaching...what I got from College was not - just a regurgitation of terminology without an explanation of what they were
Pa nece zemlja povecati uvoz hrane zbog potreba blagdana!?Narod se kreće tamo gdje su jeftinije cijene!?
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?
Derivatives are today used for mostly manipulated bets on anything. The good thing for the financial industry is: if the betting goes wrong, the big players will be bailed out = FREE LOTTERY!
Hey. 2024 here. Apparently derivatives are over 100 trillion dollars now.
10:01 lol mic drop haha
Very well explained though. I'm gonna subsribe.
I’d like the option to buy 20 human beings instead of 20 turkeys, please. Sentient beings and all things being equal with vertebrate and nervous system‘s. Still wondering Why other nonhuman species with a right to be on earth are turned into commodities. Alas, still lots of human slavery, indentured servitude. Humans certainly take the cake for exploitation. and how ingrained it is in just a simple explanation of derivatives.… Lol. That’s how inculcated and indoctrinated we are as a human race. Buying and selling the lives of others.
hmm...very nice video! thank you. I wonder if Derivatives are allowed in Islam.... I have to do my research now :P. I dont think its allowed since it essentially is a form of gambling..
the other turkey farmer, mr. jones, what if he fails as well? so we lose both 300 and 50?
and if we need to buy the turkey from him, then we will pay 350 for the 20 turkeys?
thank you!
Eliminate buying and selling these contracts would make the original deal meaningful. You take the risk, you get the reward. Period. No selling the reward at discount (or profit). Just fulfill the original contract and move on. End the paper-chase and all the gambling!
House (Fed Reserve) always win
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 ?
@Elpresidio
I just noticed the full extend of put/call-options are well-elaborated troughout the video. I guess you didn't listen accurately enough.
You could be exposed to great losses when you've purchased a TON of options to buy turkeys for the price of $15 when they're worth $10 conform the market.
amazing I watched 10 times
I will have to watch this a couple of times. When I am not settled with an evenings beer!
dumbest idea since 16 nuclear bomb to pave highway; derivatives; should be abolished;
@Linfone It seems like they are trading the future to make up for the past and ignoring today. They are also sacrificing the future.
If Bailey doesn't provide the turkeys, Terry can sue bailey for breach of contract. But if Bailey is insolvent, he won't receive any damages.
This was great, thanks for explain this sort of vague concept in a way I fully understand now
I am proud of you. You help me understand how derivatives work. Thank you!
and hence fractional reserve banking is just betting with other people's money and possibly losing other people's money.
The amount of money that can be directly or indirectly associate with these derivatives is scary..
Once that initial contact is formed then there could be 10s or hundreds of sub-ciontracts also..An initial contract of say £1000 could end up with a sub derivative network of hundreds if nit millions of dollars associated to it ..Its only a matter of time before it self destructs..
Really enjoying these white board lessons. Thank you for sharing!
Will always think of turkeys now when I think of derivatives. Thanks for the simple and fantastic explanation!
Jumps straight from grade school foolishness with turkeys to vague and totally unexplained glossing over of derivatives based on "other stuff". How the hell do you buy and sell the weather? How about a bit more detail on this business of betting on interest rates? How about something on credit default swaps and how they let a few savvy investors make a fortune on the collapse of the world economy? What a waste of 10 minutes.
@Didymosrules
What does this vid have to do with JB? Theres nothing related. For ur info, music entertainment =/= math lmao
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?
Money that makes money just because its money is like a bomb.....duh!
I appreciate your approach to teaching. I've been quite unsure about investing in this current market and at the same time I feel it's the best time to get started on the market, heard some guy speaking of making over $1.3m from a $300k capital since the pandemic and I'm driven to ask what skillet and strategy can generate such profit
Find stocks with market-beating yields and shares that at least keep pace with the long term market trend. However, for a successful long- term strategy you have to seek guidance from a financial advisor.
I'm sure the idea of a Investment Adviser might sound controversial to a few, but a new study by investopedia found out that demand for Asset-Managers sky-rocketed by over 41.8% since the pandemic and based on firsthand encounter I can say for certain their skillsets are topnotch. I've raised over $580k within 18months from an initially stagnant portfolio worth $150K which was devoid of dividend stocks.
@@peterson2300 That's impressive! I could really use the expertise of this advisor, my portfolio has been down bad.... Please do recommend a verifiable inv - adviser it would be most helpful
@@ron04 I've shuffled through investment-advisers in the past and so far “ Donna Lorraine Judge” has proven to be the most productive and well grounded, she has quite an audience so you can easily just reach her on the web to gain access to her, just look-the name up
Absolutely brilliant. Thanks man.
Derivatives increase order flow and liquidity. Must have liquidity.
This was really easy to understand. Thank you for simplifying it so much!
Great explanation man! just love t. After seeing this presentation I subscribe to the channel. Good Job!
Agree with most of Leigh's takes, but he's trolling with the CR7 not top 10 take.
I think some of you were looking for this:
lim (f (c + ∆x) - f (c) / ∆x )
∆x ➝ 0
Hahaha
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 explain it like this, "They" created paper out of thin air, then to sell portion of that paper with interest as payback. The purchaser of the paper then say this is real money and goes to next buyer (lets say) sell it in a house mortgages. Its theft, as it was only printed air paper contract . The problem if it collapse , In bankruptcy the derivative has super authority to be payed off first (except taxes). The home owner would have to come up with cash to pay mortgage in full or loose the house. Look under bankruptcy law!
If the money was held in escrow until the turkeys are delivered, it would eliminate the counter party risk. If you don't get the promised turkeys, they original amount would be returned to the contract holder.
I'm a creative watching this hoping to learn more about finance and all I see is the stick mans arms are far too low down on his stickman body. It's all I see. Stupid left brain...
terry is really a turkey, laughed at that one but thanks for explaining this is crystal clear
Derivatives and all financial machinations must be absolutely forbidden.