OpinionIndustry News

Property derivatives made simpler

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Until recently, if you thought housing prices were headed for a fall in your market, your only choice was to sell your property or ride it out. With the introduction of property derivatives such as futures contracts traded on the Chicago Mercantile Exchange or OTC-traded options, professional investors can now effectively make bets on the future direction of residential housing prices. But what about the rest of us who don't work at a hedge fund? San Mateo, Calif.-based HedgeStreet offers an Internet-based market where traders can hedge against or speculate on economic events and price movements for markets like housing. In order to simplify property derivatives, HedgeStreet created financial contracts called "Binaries." A HedgeStreet Binary is a contract that has a fixed payout of zero or $100 and is entered into between traders where the buyer takes the position that a certain strike price will be reached, whereas the seller takes the position that it will not. Thus, Binaries are al...