Back in Boston for the summer. I'm excited for the summer, but I'm also a little sad to leave DC. It really grew on me there at the end. I've grown accustomed to it in some ways and developed some good routines. It also didn't hurt that I was done with school for a few days. Nothing like removing all the pressure to make you appreciate something. If you were watching Rocky IV while getting kicked in the testicles constantly and then the testicle kicks were removed, you would even learn to like Rocky IV. Now I'm not saying DC is anywhere as bad as that movie, but it helps to be done with the year of school. Of course there's also the psychoanalytic part which says I am prohibiting myself from being happy where I am. Uh oh. Time to get a better paid psychoanalyst. But there are certain joys to being in Boston. Dirty water (literally, last week). Red Sox (don't get me started). Friends, cats, cars, no constant sound of sirens outside my window.
Of course most of my friends have...you know...things to do. Like school stuff or work. I, on the other hand, do not. And it's really freaking weird. I have nothing I really need to do right now. I got a haircut, I needed to do that. But I can't go back tomorrow and do it again. Particularly after the abuse that was finals and the constant grind of school, I feel quite unproductive. I need a project. Maybe I'll write a book report on "The Giver." Or make a diorama of "General Sherman Burning Atlanta and Torturing Innocents during the War of Northern Aggression." (Maybe I've been below the Mason-Dixon line too long.)
In an effort to begin a routine (also, I can't buy toothpaste at CVS everyday, that would end poorly) I biked to the gym and back today, while stopping to work out a little. Google Maps tells me it is 6 miles each way. Sounds intense? It wasn't too bad actually, though I never thought I would actually make it the entire way. I brought my cell phone in case I had to call a cab. Or someone needed to call my house to make funeral arrangements because I had either been hit by a car or I collapsed due to strain. Well, now my butt hurts from the bike seat (yes, there are easy jokes to make...but let's move beyond them) and it hurts my legs to walk down stairs. I'd call that a success for the day. I'm going to try to keep this up. If my knee doesn't explode this summer I will be surprised.
Jonah just reminded me: the Nationals are doing well! Who would have seen that coming? I may well look back on this in September and laugh and laugh.
I am trying to understand this Goldman-Sachs thing. And one major question I have: What is a derivative?? Everyone talks and writes about them, but no one cares to explain. We weren't all econ majors and business school grades. It's not helpful to tell me they are a financial instrument. A trombone for sale is a financial instrument. What exactly is a derivative? Will some reporter or someone please summarize what is going on in terms that a person who is not in finance can understand?
I know what you want to do. You want to come into my middle school and terrorize my 6th graders. It'll be so much fun. Actually, I think you would have way more fun than this post may sound with my two high level boys, Mario and Darius. Come on. Jamaica Plain. What else are you doing?
ReplyDeleteWill,
ReplyDeleteSUMMARY: Derivatives are a way for financial entities to make bets on what things will be worth/cost in the future.
A derivative is a financial term for an agreement or contract that can attain a value based on the price / value of something else.
It includes things like futures contracts, swaps, and options.
Basically, when you buy a stock, you are acquiring an actual piece of a company, something that has an "intrinsic" (sort of) value. A derivative has no intrinsic value in and of itself, but allows participants to magnify or distort the value of underlying assets.
For example, stock options: Stock options don't have a fixed value themselves. They are agreement from a company to allow a different entity to buy their stock at a specific price at a specific time.
So say I have an (American style) option to buy 200 shares of yahoo stock at $20.00 a share, until July 2010. Yahoo/the bank is making some money up front because I'm paying for the option. I'm effectively betting that the stock will go up to more than $20.00. If that is the case, I make money, because I can buy 200 shares for $20, and then immediately sell them for the higher market price. If the price goes below or stays at $20, I'm out the price I initially paid for the option, but I otherwise can let it expire, and don't have to buy the actual stock.
A lot of investors use them to manage risk. So say I buy 30000 shares of yahoo for $20 each. The market price goes up to $25 per share. I could buy an option to sell 10,000 of those shares for $25 a share for say, $3000 bucks. Now, if the price keeps going up, I just keep the stock, let the option expire, and I'm only out $3000. But if the price tanks below $25, I can sell 10,000 shares at $25, and cushion my losses.
So the option contract itself doesn't have any real value, but it can magnify or minimize the value of its underlying asset.
Thats the sort of thing derivatives are: contracts or agreements that modify how two parties will exchange assets above the base market price.
Other examples include:
Futures (which are like options except that you HAVE to buy the asset at the time and price specified, you can't just choose not to use it.)
Swaps: If two parties have debts of the same amount, one with a fixed interest rate, the other with a variable one, they can agree to swap the payments, so that party A is now paying the variable rate and party B is now paying the fixed rate. A is betting that rates will go down and they will end up paying less, and B removing the risk that the rate will go up.
SUMMARY: Derivatives are a way for financial entities to make bets on what things will be worth/cost in the future.