Traders Do Something About the Weather
Also hedge-fund reneging, Polymarket vs. Kalshi and Onion Futures Act protests.
Financial instruments are derivatives of underlying reality. A share of stock in Apple Inc. represents fractional ownership of Apple’s offices and intellectual property and the cash flows from its business. An Apple option represents a bet on the future price of that Apple stock. An S&P 500 index fund represents a collection of claims on 500 companies’ stocks. A Treasury bond represents a claim on the US government’s future ability to collect taxes. A Treasury futures contract represents a claim on the future delivery of a Treasury bond. Oil futures represent the future value of crude oil drilled out of the earth and delivered to certain terminals. An interest-rate swap represents a bet on the future level of some benchmark interest rate calculated from the actual rate charged in some set of lending transactions.
It is often true that the underlying reality is, in some loose sense, bigger than the financial instrument derived from it. Apple’s stock is quite big, but Apple is bigger. Its $4 trillion stock-market value represents only a fraction of the economic activity involving Apple. If you buy an iPhone for $1,000, maybe $250 of that goes to shareholders; the other $750 goes to Apple’s employees and suppliers and other stakeholders. But, also, if you buy an iPhone for $1,000, presumably it is worth more than $1,000 to you. If you use that iPhone to text your loved ones and buy stuff online and write financial newsletters, all of that activity is in a sense downstream of Apple.