Majority of the world's wealth lies in the derivative market. Why do stocks when you can control the same amount of the underlying using futures and options? Derivative increases the efficiency of money by allocating risk to the people who are willing to assume them. Wealth can be created from "nothing." All you need to do is to give "nothing" a price.
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Except in a crash, as we saw in 2008. Despite their binding contractual nature, they could not be paid, as the money to pay them had vanished in the crash.
Derivatives are a scam, and are only useful as long as the market, as a whole, remains functional. When the market breaks, so do they. Also, they're a bit different than calls and puts. There's more to them than that. They're more like an insurance than futures.
As we frequently see, insurance breaks too easily when disasters strike.
But calls and puts are derivatives as well. If derivatives are scams, then why don't you take part in the other side of the trade? There always two sides to a trade. There's a reason why insurance companies are making a killing.
Because, as I said, the value of derivatives is unrealizable in an existential market crash. The paper position is irrelevant when the market cannot cover them. 2008 proved this, and only the extremity of the 5X inflation of the money supply - merely a temporal reprieve - covered them.
Will we undertake a 50X inflation next? It becomes too obvious a caricature of actual markets to enable acceptance at some point. The monetary flows into cryptos indicate to me we have passed that point.
When the bubbles pop this time, what is left of the phantom fiat will be poured into a real solution, I think, rather than more smoke and mirrors.
YMMV
you can still choose to exercise your derivatives or simply let it expire.
Derivatives that were employed to hedge the risk of the bundled mortgages were not exercisable, despite them being theoretically very valuable when the mortgages defaulted.
They couldn't be, because there was no money to pay them.
It wasn't a matter of choice.
And sell "nothing" as said price.
That is important too.