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0 pointsqeternity2y ago0 comments

Let's say you are an airline. You are selling tickets for the next year. Jet fuel is a major input cost, largely driven by the price of crude oil. If you sell a ticket today for 6 months from now, you are implicitly short the oil market.

You haven't actually shorted the market, but if prices increase over the next 6 months, you may end up losing money on the tickets you sold. This is why you see airlines hedging, because they are implicitly short.

The same holds true for housing for most people as I explained above. People rarely downsize their homes. Their forward consumption of housing is almost always greater than their current exposure to the housing market. This leaves them implicitly net short.

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s1artibartfast2y ago· 1 in thread

Thanks for explaining. your are talking about exposure to cost increases relative to your intended purpose.

I hold that still depends on what your alternative investment opportunities are. If you buy the $1M house when you actually want the $2M house, you are still locking in 50% of the cost. Thats a good thing if the alternative investments perform poorly, and a bad thing if the alternatives are better.

qeternityOP2y ago

Yep, you are indeed locking in part of the cost, but you are still implicitly net short and thus better off if prices fall vs rise.

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