Zvonimir Boban said:

It's a bit like Trading Places.

Let's say I decide my Dortmund shares, worth £10 today, are going to tank a month from now. I find someone who wants to buy Dortmund shares at £10 each and agree to sell at that price one month from now if the price drops below a certain threshold, let's say £8.

In exchange I pay £1 which is non-refundable, kinda like an insurance premium.

So one month from now, when Dortmund shares have tanked to £8 I sell them for £10 which is the price I agreed to a month ago. £10 selling price - (£8 value + £1 premium) = £1 profit per share.

Because it's an option, if the price doesn't drop then I don't have to sell my shares and eat the £1 premium.

That's the gist of it anyway.

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orhnsnmz said:

Ok this sounds way too much like gambling and I don't understand why I as the broker (or whoever makes deals like this) would take the risk of losing so much money, if the premium is so low in relation to the loss I would make when I lose the bet.

I may be also way too naive about this, but I think explicitly betting on shares to go down should be forbidden, because that's something that's actually easy to accomplish for crazy maleficent people (like the one here).

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sibarraz said:

There is an option were if stock prices fall, you can buy them at an fixated price?

How does that work?

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orhnsnmz said:

Ok this sounds way too much like gambling and I don't understand why I as the broker (or whoever makes deals like this) would take the risk of losing so much money, if the premium is so low in relation to the loss I would make when I lose the bet.

I may be also way too naive about this, but I think explicitly betting on shares to go down should be forbidden, because that's something that's actually easy to accomplish for crazy maleficent people (like the one here).

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Zvonimir Boban said:

It's a bit like Trading Places.

Let's say I decide my Dortmund shares, worth £10 today, are going to tank a month from now. I find someone who wants to buy Dortmund shares at £10 each and agree to sell at that price one month from now if the price drops below a certain threshold, let's say £8.

In exchange I pay £1 which is non-refundable, kinda like an insurance premium.

So one month from now, when Dortmund shares have tanked to £8 I sell them for £10 which is the price I agreed to a month ago. £10 selling price - (£8 value + £1 premium) = £1 profit per share.

Because it's an option, if the price doesn't drop then I don't have to sell my shares and eat the £1 premium.

That's the gist of it anyway.

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orhnsnmz said:

After reading on this a little, I still think that this should become forbidden (which obviously wouldn't stop people from doing this, but it would at least act as a deterrent).

With regular stock trading I can only buy shares and hope that the price goes up (as a regular joe I can't realistically influence this, because I'm not crazy neither powerful nor well connected enough).

But if I bet that the price will go down and I'm fairly crazy, I can go out and influence the outcome. For example, I could just stalk and shoot Elon Musk, which would totally bring down Tesla's and SpaceX's share prices and I'd make serious money on that?

Crazy that this entirely legitimate, especially in today's world.
But I guess finance industry just doesn't care.

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