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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers
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To: jackjc who wrote (48146)8/26/2007 9:21:08 PM
From: maxncompany   of 78419
 
I understand what you're saying, but I don't think it works that way with all of them. Not all derivatives are structured alike.

Some are basically insurance, and if your insurer that took the premium for accepting the derivative that he never thought he would have to pay on (because according to "models" chances seemed infintisimal), is inundated with numerous derivatives which he must pay on (not unlikely since most overleveraged themselves in pursuit of as much seemingly easy gains as possible), he can be in a position of not being able to perform what he agreed to. He is wiped out, and those that he accepted the premium from are wiped out since their "insurer" is unable to cover them as agreed to in their derivative contract.

I know not all derivatives are like that, but this type is out there. I admittedly don't know nearly enough, but I know that not all are of the kind that "one side wins, one side loses, so they balance out".
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