![[0021] Allowance Reverse Default Swaps](http://www.sandraandwoo.com/comics/2009-01-01-[0021]-allowance-reverse-default-swaps.png "[0021] Allowance Reverse Default Swaps")
I’m quite sure that Sandra’s little scheme would not work in reality. But then, I’ not sure sure, and we all can see how this ended for Wolf & Kleiber Ltd.
Since a normal “swap” didn’t seem to be exotic enough, I made up the term “reverse swap”… just to discover that such a thing actually exists!
- News: Blah blah blah global financial crisis blah blah blah short selling stocks and derivatives blah blah blah … speculators are already looking for new investment opportunities.
- Sandra: ?… !
- Sandra: I will no longer tidy up my room, Daddy.
- Richard: No? Then say bye-bye to your pocket money.
- Sandra: That’s the point! I’ll issue put options on allowance reverse default swaps on the New York Stock Exchange!
- Sandra: One day before my allowance day, I’ll start short selling the options and thus create an artificial demand for the reverse swaps. They’ll be worth a fortune!
- Richard: … Wait, what?
- Anchorwoman: Business news. The hedge fund Wolf & Kleiber Ltd. had to file for bankruptcy yesterday after losing 2 billion dollars in a gamble with junk bonds issued by the local company SN Financial Services.
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… what?
Well… she MAY want to be a math major, but she seems EXCEPTIONALLY WELL in economics… That was something amazing she came up with in sutch a short amount of time.
Well, it would work but slowly and if Sandra does her research ahead of time. The few times I played with virtual stock market sites (not real money), that is what I would usually do.
Another option, which my Dad actually did durring Vietnam war, was while the currency conversion rate kept changing, was track that. I dont recall excattly which currency he would use but for a total random example, let say today you could get 100 Japenese Yen for 1 USD, he would convert 100 USD for 10,000 Japenese Yen. Then next week the conversion is you get 75 Japenese Yene for 1 USD, he would convert his Yen to USD and get 133.33 USD. Unfortiontly today, most of the common currencies that you could easily convert without putting through orders or paperwork, etc are pretty much stable (at least last time I checked which was a couple years ago).
And Sandra is how old now?
WE. NEED. MORE. WOO!!!!!!
I think what I like the MOST about this comic, actually, is that Sandra’s outfit ACTUALLY changes from comic to comic. There’s the oversweater (with a broken zipper), the black shirt w/ stripe, a white shirt w/stripe, and a large, turtleneck sweater. And THAT’S only within the last 4 comics! HECK, it even CHANGED in one comic to show time progression (the math comic).
I love those little things
sorry, double post, I know. The name of the comic I previously stated (Twice, I might add) is “high flying dreams.” And the shirt didn’t change… though it would have been cool if it had.
“WE. NEED. MORE. WOO!!!!!!”
It’s great that you like him so much, but there will always be periods of several consecutive strips without Woo. By the way, there are still more strips featuring Woo (18) than strips featuring Sandra (17).
“And the shirt didn’t change… though it would have been cool if it had.”
Uhm, that would not have made much sense since the last panel is playing just a few seconds after the first one.
“Uhm, that would not have made much sense since the last panel is playing just a few seconds after the first one.”
Oh… I was under the impression that it was a week later, and she was talking about how she didn’t do too well on the math test because she forgot the Quadratic Formula. Guess it’s a perspective thing.
Doesn’t change the fact that she doesn’t wear the same outfit EVERY day, Sure, she has 4 or 5 separate outfits, but hey, so do I.
As Odos mentions, you do something that many others wont bother to do. Another AWESOME point for that. Not quite sure what they do, but still…
Also, she seem to be very young to come up with such ideas. But then again, we do mostly have to do with a genius at that fact. And Im quite sure I have to thank this strip for getting me a brilliant plan to gain a heck load of money. Its easier to change SEK into USD in Sweden by some reason… :3
It’s probably the lager talking, but for heaven’s sakes, doesn’t a lot of the economic reporting sound like it was made up by a bunch of really drunk frat boys? “All right, lads, we’ve got to get passing grades in this week’s quiz… why don’t we make up some new terminology?”
[...] stories range from the adventures of Woo and his animal friends in their eat-or-be-eaten world to Sandra’s dabbling in high finance. The funniest arc so far is the one in which Tweety gets his (start here), but the creators also go [...]
hmm i like how you use calvin and hobbes reference through out the strips.It brings back memories ah why could he continue his comic.Well anyway keep up the good work and go german artists and stuff like woohoo…..
umm, how exactly does this work?
Keep up the good work, another informative post.
Ok, that one was interesting too. Especially with it coming at the time of all those hedge funds and their naked short selling. Well, that was a few months earlier, really. No, the real way to sucker them would have been to buy up all the far out of the money call options in something they were naked shorting for next to nothing, then buy a bunch of stock, and then demand delivery of stock certificates, and then redeem your options for more shares and demand delivery. That would take a lot of money to do, but it would drain them dry, oh yes it would.
Haha!… wait… what?
I @ Axalto:
I agree. I have absolutely NO IDEA WHATSOEVER what she just said. Then again, I STILL don’t understand government, despite being a senior in high school, I STILL have a hard time understanding Finacial Lit, even though I took the class last school year, and I STILL have almost NEVER understood stock.
Basically, a put option is like a bond, and a Default Swap is a bet that debt will not default. If we treat her allowance as “defaulting” if she doesn’t get her allowance, then a default swap would be a situation in which she’d pay a fee to a third party, and if she doesn’t get her allowance, the third party would pay it to her.
A “Reverse Default Swap” is the inverse, and it is basically the third party paying her a fee so that, if she doesn’t get her allowance, she would have to pay the amount of the allowance to the third party. Normally, this is meant to undo a previous Default Swap.
A put option is a contract in which an issuer issues to a second party the right to sell an asset as a specified price at a specified time. The agreed upon price is called the “Strike Price”, and the agreed time is the “maturity”.
Now, the issuer is betting that the price of the asset will be higher than the Strike Price when it matures, rendering the option worthless and thus the issuer has made the value of the premium at no cost to himself.
The buyer of the put, by contrast, is betting that the value of the asset will be less than the Strike Price when it matures, at which point he can buy the asset and then sell it at the Strike Price, pocketing the difference.
As such, the buyer of the put is (counter-intuitively) in the short position on the asset, because the more it falls in value, the more money he makes. The Issuer is in the long position, as he wants the asset to grow in value.
So, putting it all together, Sandra is doing a Reverse Default Swap on her allowance, which means that if she doesn’t get her allowance, she has to pay a third party. Therefore, the Reverse Default Swap is an asset that has more value if she does not get her allowance, because the buyer of the Swap gets money if there is a default. She is then issuing put options on the Reverse Default Swaps, and all the people who buy said put options are now betting that the Reverse Default Swap is going to go down in value so that they can then buy low and sell high when the put option matures.
Then SANDRA starts short-selling the put options, thereby betting against the people who bought the options, who are betting against the people who bought the Reverse Swap, who are betting against her getting her allowance. As such, if she doesn’t get her allowance, the people who bought the Reverse Swap make money, causing the people who bought the options to lose money, which in turn causes Sandra to make a fortune on the short-selling.