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Comment by swixi | Hacker News Reader

This just seems like a complicated way to go about budgeting correctly. Save money when you have excess from increased revenues, and use that to cover yourself when revenues decrease. I don't understand what is gained by bringing puts into the equation, if they are just as cyclical as your revenues. And it seems to me that you'd need a decent understanding of what your budget should be in order to decide how much to spend on puts in the first place. What am I missing?

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Saving money requires keeping cash (sometimes a lot of it) in the bank that could otherwise be put to productive use. Options contracts allow offloading of risk without keeping this excess cash sitting there doing nothing.

It can be much more capital efficient.

Call me crazy but I thought the idea is that banks would use deposits to fund loans and kick some of the profit back to the account holder in the form of reasonable interest rates.

That seems capital efficient to me, but it's apparently a quaint relic of the past now that eternal 0% interest rates are the norm.

I'm reminded of the scene from It's a Wonderful Life where George Bailey explains to all his account holders why they can't all withdraw their money at once, because it's being put to productive use by their fellow townspeople: https://youtu.be/iPkJH6BT7dM?t=49

The banks still do this; they leverage deposits to back the loans they provide.

However, they have little to no impetus to provide a reasonable interest rate on savings accounts; they'd much rather pay the absolute possible minimum the market (and regulation) will allow, and pocket the rest as profit.

Banks don't use deposits to make loans though, that's a widespread misconception which is perpetuated by concepts such as 'fractional reserve banking'. In the modern economy bank lending is simply adding a number to someone's account and adding an equal number to the bank's loan sheet.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

Simply put a bank with zero deposits could still lend money, the only constraints are risk and regulation.

But you're not offloading risk -- you're increasing risk. What if jet fuel rises for some reason other than increased usage? What if usage is increased, but, people simply aren't visiting your region?

Simply doing something with the money is not necessarily better than doing nothing with it. None of the above is productive use -- it's simply betting. Jet fuel producers don't care about your commodity-indexed fund call option.

Maybe I'm misunderstanding you, but don't options contracts introduce risk? I've never run a business -- what risk are you incurring by having the cash sitting in a bank? If the play is instead to take a (perhaps small) risk in order to increase your amount of money or keep up with inflation, I understand that. But then I still don't see why options are necessary. There's lots of ways to do that.

The original post described options as a way to make your stream of money both "safer" and "steadier". I'm struggling to understand how introducing options can be safer and steadier than keeping money in a bank and creating an intelligent budget.

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