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Jane Street barred from Indian markets as regulator freezes $566M

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518 points bwfan123 | 3 comments | 06 Jul 25 14:03 UTC | HN request time: 0.712s | source
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MichaelNolan ◴[07 Jul 25 00:02 UTC] No.44485321[source]▶
Anyone have any recommendations for books/papers/articles (math heavy is fine) that give a good steel man argument for why options and derivatives are beneficial?

I can wrap my head around why/how options for physical commodities give price stability for sellers and buyers. But at first glance I struggle to see how derivatives are beneficial in the equity markets. The argument is that derivatives increase market efficiency (more accurate pricing) over what just a simple buy/sell market would give you right? But how valuable is this increased efficiency? Obviously is super valuable to the people who work in finance, but how valuable is it outside of that context?

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1. pjc50 ◴[07 Jul 25 09:11 UTC] No.44488266[source]▶
It's helpful to remember the history of how they got here. Commodity producers (farms, oil) need to make investments before production, but want to reduce their exposure to changes in the spot price in the future. Hence futures: the ability to sell oil or onions six months in the future at an agreed price, rather than wait until the day to find out spot. This is genuinely valuable to them in terms of shifting risk to the finance industry in return for a price. It's like insurance.

Options are then futures where you don't necessarily have to close out the position. They are a means of insuring against price changes .. or to get paid for providing such insurance.

However, in things like farming and oil exploration much of the risk is real and physical. The further away you get from that to derivatives of other financial instruments, the more it becomes just a mix of what the other market players are doing.

Then there's "we priced these risks as de-correlated but actually they're correlated", which blew up a lot of people in 2008.

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2. iamthemalto ◴[07 Jul 25 17:27 UTC] No.44492636[source]▶
Helpful comment, but it's also mildly amusing you picked one of the few agricultural underlyings you can't trade futures on (Onion Futures Act). Not sure if that was intentional or not!
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3. pjc50 ◴[07 Jul 25 21:07 UTC] No.44494677[source]▶
It was - and illustrates the point that these markets are fine until someone tries to corner them..