Comment by sigmaprimus | Hacker News Reader

Comment by sigmaprimus | Hacker News Reader

Just as vast fortunes were made during the financial crisis of 2008 by selling the markets short ( see the film "The Big Short") I would expect there are people betting on climate change continuing down its current tragectory, and these people now have a vested interest in making this happen. I don't know how many other billionaires are putting their money on the pro climate change side but wouldn't a smart investor diversify their portfolio by betting on both the pro and con sides of climate change?

I don't know what the form of such investments would take but can think of a simple one being investing in real estate northern regions where temperatures are currently too cold to support agriculture. Possibly an investment in water desalination plants would also see a gain from climate change. I'm sure there are many more better examples, my concern is that for every billionaire looking to save the world, there is another looking to make a buck off its collapse. So what happens when more of these profateers decide to use their vast fortunes to tip the scales further towards the collapse rather than salvation?

Logically speaking this amounts to betting that the Titanic will sink on its maiden voyage, while you’re stuck on the Titanic.

No, it’s betting the titanic will sink while you know you’ll be dead before it starts sinking.

Haha, man, would that be a terrible way for the human race to go. Driven to extinction just because a few men really only cared about their own lifetimes. It would be highly amusing.

You're supposed to diversify your portfolio by betting on uncorrelated things. Betting both that something will go up and down is like placing money on both red and black, it doesn't make you any richer.

Doesn't make you any poorer either, if your rich you want to protect your wealth. I believe it is called arbitrage.

https://www.investopedia.com/terms/a/arbitrage.asp

It doesn't seem intuitive but there it is.

Incorrect. Arbitrage is risklessly taking advantage of contemporaneous price differences by buying in one place and selling in another at the same time.

OK, but I still stand behind my premise. Bookies make money regardless by which team wins. Casinos show profits betting on red and black simultaneously because of the zeros. And it happens all the time in much more complex way in markets.

Also the financial term I was thinking of I believe is called "Futures" and it is used to protect against large swings in currency values between countries. Inverters exploit this through arbitrage.

I think this is wishful thinking. It'd be neat if there was incentive on both sides of the debate, to bet both against and for the idea that climate change will happen. Unfortunately that's not how it is: the real direction of the change in climate will be the most profitable option, and that's where investors will flood. And yeah, that might cause a self-fulfilling prophecy (incentivizing and accelerating climate change), but that's just how it is, that's where we are. Maybe we can try to spread false ideas like yours to make investors think it's good to invest on both sides, but I don't have much faith in its potency to make real impact.

Could you clarify your statement? Are you of the opinion that the money is already invested on the side that climate change can not be stopped? Or the opposite?

Bookies and casinos are set up so thatvit is mathematically impossible not to win.

futures originated from commodities trading, where you wanted to lock in the price of a ton of corn or wool or whatever because you fear the price will go up.

you don’t need them for currency arbitrage. you just need very fast connections to multiple currency markets, low transaction costs, and mispriced exchange rates.

it’s riskless because the money itself is mispriced and you can buy it for one price (in your own currency) and sell it for another all in one transaction. you get the difference for free. that’s what makes it riskless and that’s what makes it arbitrage.

keep reading those investopedia articles, it’s all in there somewhere!

Bookies make money because they run the game.

I think you’re specifically thinking of covered interest rate arbitrage, in which a trader borrows in one currency at a cheap rate, lends in another currency at a more expensive rate and uses a currency forward to hedge out the exchange rate risk, netting the rate differential in the process. It’s not truly ‘arbitrage’ in the formal sense;there are still some notable risks in such a trade.

Can’t you construct a bet that a price will either go up or down, but not remain steady? I believe that’s called a long straddle but I’m not super knowledgeable here.

yes, but that severely limits your upside, and it’s harder to thread the needle (in both timing and pricing).

In a straddle/strangle you have unlimited upside on both legs (up and down/call and put). It’s a matter of determining if the long gamma+long volatility position is worth the price you pay in option premium up front and decay thereafter (theta).

that's true, and a more complete explanation.

i was taking the practical view that in most cases, the underlying options are reasonably priced and volatility is not highly unusual, so the practical upside is small at best. it's easy for the non-professional investor to lose money on these because you really need some extraodinary non-public information to exploit them.

Even shorters need to make their gains from someone else. You are assuming that there are many people betting that climate change will not happen ? I think it’s safe to assume that climate change has been priced into the market.

I'm sorry I must have misread the article we are all commenting on, I thought "investing prophet Jeremy Grantham" wast investing the majority of his wealth in trying to stop climate change, maybe I'll read the article again. From your comment I'm way off, or maybe you didn't read it?

I often wonder how much climate change is priced in. If climate change is a given, wouldn’t we see it reflected e.g. in the implied vols of super long-dated options or real estate in Miami? VCs would be placing bets like crazy on solutions. Markets just don’t seem to be assimilating this info to me. Wonder if there have been any formal studies on this.

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