Major Industry

[pcbres16]

How many of you here want to start a business involving some major industry? I am not talking about tax prep firms, or small time websites, etc. I mean like how many of you one day want to own a steel mill or a railroad? Do you want to sick to just small peanuts, or go for the gold and own something like an oil or mining company?

[KyleXY]

Definition of what constitutes of major or large will vary. I mean if your business has only 1 customer but does $1 billion in revenue, does that still count as large or major? Or vice versa, what if you have a billion customer but make nothing? Obviously these examples are extreme but it highlights that defining what is considered a large business or a major industry is going to be highly subjective to the individual.

My personal preference are in both large scalable businesses as well as lifestyle businesses primarily, but not limited to, the technology sector. I have little to no interest in the oil and mining industry, or the steel and railroad industry as of right now, but certainly an interest in large businesses. I presume they were examples anyway to reflect Andrew Carnegie and John D Rockefeller.

[akula]

How many of you here want to start a business involving some major industry? I am not talking about tax prep firms, or small time websites, etc. I mean like how many of you one day want to own a steel mill or a railroad? Do you want to sick to just small peanuts, or go for the gold and own something like an oil or mining company?

yea..i'm in financial services..
my business is creating a new trillion dollar industry in property derivatives
over the next 20-50 years, what i'm doing will be one of the biggest markets in the world

[tyreandme]

I want in on suma that Akula

[akula]

)) go for it man!!
sell European put options to homeowners in your area
you'll make millions over millions

[tyreandme]

Akula,

I have never heard of this kind of trading before, it looks interesting. So the writer makes his profit from the premium, gambling on the risk that the shares do not drop below the "strike price"?

[lucygreenlucky]

I want to take part in banking industry.but this is just a dream now.

[akula]

Akula,

I have never heard of this kind of trading before, it looks interesting. So the writer makes his profit from the premium, gambling on the risk that the shares do not drop below the "strike price"?

Ummm yes and no. It works like this:

1) Sometimes people buy real estate. Home owners, investors, business owners who need a shop etc.

2) Sometimes these people buy the property with a view to sell it for a profit in the future.
e.g. A young couple buys an apartment for 500k in 2010, and they think they might sell it for a profit five years later so they can buy a bigger home and start a family.

3) In these circumstances, sometimes, the real estate owners are worried home much they might be able to sell their property for in 5 years. Will they sell their apartment for 600k, 700k? Maybe the market will drop and their property will only be worth 450k and they'll lose money. No one knows how the market will go.

4) A put option is a kind of insurance policy that you can sell to these real estate owners, to give them a peace of mind and guarantee that they will make a profit on their apartment no matter what happens to the real estate market. It's basically a contract that says, "Your property is now worth 500k in 2010. I give you an option to sell that property to me for 700k in 2015. In exchange for me giving you this promise, I charge you a fee (the premium)."

5) Then, in 2015 one of two things happen. Firstly, the market could have done well and their property is now worth 750k. If this happens, the homeowners let the option lapse, sell the property to someone else, and you just keep the premium. Or, the market could have done badly, and their property is only worth 600k. In which case they call you up to exercise their option, and you end up buying a property that's worth 600k for 700k, losing 100k minus the premium that you charged.

And that's all. That's how property put options work. Quite the racket if you know how to do it right.
I'm hoping that in the future, this kind of capital gains insurance will become standard, in the same way that people buy insurance for their cars.

[rogercbryan]

Ummm yes and no. It works like this:

1) Sometimes people buy real estate. Home owners, investors, business owners who need a shop etc.

2) Sometimes these people buy the property with a view to sell it for a profit in the future.
e.g. A young couple buys an apartment for 500k in 2010, and they think they might sell it for a profit five years later so they can buy a bigger home and start a family.

3) In these circumstances, sometimes, the real estate owners are worried home much they might be able to sell their property for in 5 years. Will they sell their apartment for 600k, 700k? Maybe the market will drop and their property will only be worth 450k and they'll lose money. No one knows how the market will go.

4) A put option is a kind of insurance policy that you can sell to these real estate owners, to give them a peace of mind and guarantee that they will make a profit on their apartment no matter what happens to the real estate market. It's basically a contract that says, "Your property is now worth 500k now in 2010. I give you an option to sell that property to me for 700k in 2015. In exchange for me giving you this promise, I charge you a fee (the premium)."

5) Then, in 2015 one of two things happen. Firstly, the market could have done well and their property is now worth 750k. If this happens, the homeowners let the option lapse, sell the property to someone else, and you just keep the premium. Or, the market could have done badly, and their property is only worth 600k. In which case they call you up to exercise their option, and you end up buying a property that's worth 600k for 700k, losing 100k minus the premium that you charged.

And that's all. That's how property put options work. Quite the racket if you know how to do it right.
I'm hoping that in the future, this kind of capital gains insurance will become standard, in the same way that people buy insurance for their cars.

Is anyone doing this in the US yet? Are their regulations governing this in the US? So many questions I don't even know where to begin. The most worrisome thing for me personally is that my two profitable businesses (vehicle brokerage & online bookstore) are in declining industries. I'm just now getting into renewable energy with my first large project (bio-fuel) kicking off next month. When I see a program like what you are talking about I see the future... these are the things I want to move into as I move away from my older businesses... If you are looking to do this in the US let me know..

Simply Impressive..

[akula]

Is anyone doing this in the US yet? Are their regulations governing this in the US? So many questions I don't even know where to begin. The most worrisome thing for me personally is that my two profitable businesses (vehicle brokerage & online bookstore) are in declining industries. I'm just now getting into renewable energy with my first large project (bio-fuel) kicking off next month. When I see a program like what you are talking about I see the future... these are the things I want to move into as I move away from my older businesses... If you are looking to do this in the US let me know..

Simply Impressive..

))) Right on!! Aww Rog I'm so happy that you share my enthusiasm for this opportunity. When I think about this business I imagine a safer, more predictable world where families feel more comfortable and confident about making big investment decisions when their buy their homes. After what's happened last few years, I never want to see another family go bankrupt because the value of their house suddenly declined. I find meaning in solving this problem.

1. The regulations for this venture are essentially pretty straight forward. There are no special regulations. A put option on a property is a simple insurance product, and the relevant regulations apply, as for any other general insurance company.

2. Competition wise, strangely enough, there isn't any that I can find. At least none that's advertised. That's not to say that people don't use derivatives on property...they do, but when it happens, it's not as often as it should. I don't know why, but I haven't found any complicated reason for why this industry doesn't exist yet. People don't sell put options on RE for the same reason that no one sold interest rate swaps before 1980s. It's not that no one knew what swaps were..it's just that no one got around to selling them. But once they did...it took off and now interest rate swaps are a trillion dollar industry. The same will happen with property derivatives.

3. Technically wise, selling put options on RE is not a simple thing to do, but it's not overwhelmingly difficult. It took me little under a month to calculate the financial model used to price these insurance contracts. Of course, there are several other issues, like reinsurance (i.e. When the put option holder calls me up to sell me the property, I have to have the money from somewhere), but all those things are pretty routine as well.

Overall, look, I finish the course I'm doing in November 2010, and then I'm a free agent. The Australian market is much smaller than the US market, so naturally I would really like to make my way over and come say "Hi!!!" )))

Like you said...we all need something to look forward to, and property derivatives, like cleantech, is a trillion dollar global industry in the making...and I mean, I'm not really the kind of guy to get hyped up about things. Many people think likewise. If you'd like to, here is a text book on the subject. Released recently, and the only one in existence (as far I know). This space really is that nascent. We should keep in touch about this.

[rogercbryan]

I'm printing the book now... thanks for the link! I'll give it a read and then hopefully we can chat some more about this. Would you happen to know if I would need any particular licensing in the states like a Property & Casualty Insurance License?

[akula]

I'm printing the book now... thanks for the link! I'll give it a read and then hopefully we can chat some more about this. Would you happen to know if I would need any particular licensing in the states like a Property & Casualty Insurance License?

Solid. Ummm...I'm not sure. I haven't looked at the relevant US regulations in detail. As far as I know, insurance regulation varies state to state. For example, in DC, the Government of the District of Columbia Dept. of Insurance, Securities, and Banking, regulates insurance. Likewise, I have a hunch there would be some sec/finra oversight as well. The specifics, however, I haven't looked into yet. What do you think?

[rogercbryan]

Solid. Ummm...I'm not sure. I haven't looked at the relevant US regulations in detail. As far as I know, insurance regulation varies state to state. For example, in DC, the Government of the District of Columbia Dept. of Insurance, Securities, and Banking, regulates insurance. Likewise, I have a hunch there would be some sec/finra oversight as well. The specifics, however, I haven't looked into yet. What do you think?

I think I'm going to give this book a read... I can already see some of the technicals may take a little while to grasp... Once I've got a better understanding of this whole thing I'll look to the legalities. I've been throwing around a ton of new project ideas as my bookstore seems to be streamlined and profitable now. This could not have come at a better time for me. I'll get back to you once I've read the book and have done a little research... If you come across any ideas please do let me know... this is really interesting stuff..

PS.. Already went to GoDaddy and bought six domains for a company name that would work for this project.. .lol

[akula]

Awesome!!! ))) Nice work! Which domains did you register??

I hope you'll enjoy the book...it has a visionary undertone
Ummm the technicals, have a look at it for interest sake, but keep in mind that what the book talks about, and what the insurance product is are different things. Other than decsribing the market for property derivatives (and it's history) the book is not extremely helpful (because it talks about index based options rather than insurance contracts).

I made that mistake initially when I started looking into this stuff...I thought that I need the book etc to find out how to price put options using Black-Scholes or binomials etc...it was a mistake on my behalf. Wasted lots of time because of it..

The actual model for pricing this kind of insurance is different to what's in the book.
When you'd like to, lets catch up on skype and I'll walk you through it if you like )))

[rogercbryan]

INSUREYOURHOMESVALUE.COM
PROTECTYOURHOMESVALUE.COM
HOMEVLAUEDERIVATIVES.COM
DERIVATIVESFORHOMEVALUE.COM
HOMEOWNERSVALUEINSURANCE.COM
VALUEINSURANCEFORYOURHOME.COM

Not the greatest when it comes to being short... but they are perfect for optimization based on keywords...

I had just started reading a book this week about derivatives specifically options, forwards and futures.. I swear this is very odd timing...