Category: General

How the Trading Places Final Scene Works

Ever wondered how Louis & Valentine bankrupted the Dukes and made their fortune in Trading Places? Well, Straight Dope user Billdo explains commodity trading:

Commodity futures are a little different. With futures, you promise to buy or sell the physical commodity at at a specific date for a specific price (For example, Frozen Concentrated Orange Juice for December 1 delivery at $100). Everyone in the market is either promising to buy or sell on the delivery date at the specified price. Unless you actually produce FCOJ, or use FCOJ in your business, you are trading speculatively. Unless you match the number of contracts you’ve sold and the number you’ve bought by the delivery date, you will have to pony up the OJ (or buy it) at that date (though actually you’ll probably be able to buy or sell the OJ on the spot market if you cannot deliver or use the physicals, though the spot market price can vary significantly). Needless to say, commodity future trading is very risky (and is subject to the same sort of margin calls as short selling of stock).

Now what Ackroyd/Murphy did was initially sell contracts for delivery at a later date. That is to say, they promised that by the delivery date they would get enough OJ by the delivery date to cover their contracts, either by obtaining the physical OJ, or by buying offsetting contracts in the market. When everybody thought there would be little OJ supply, the price of this promise to sell and deliver was very high. When everybody found out there would be ample supply, the price of this promise to deliver dropped significantly. After the price dropped, they bought back offsetting contracts for delivery (or looked at another way, they got a promise that they could buy the same amount of OJ at the delivery date that they had earlier promsed to sell). Having equalized their position, they could leave the market with the money they made.

Now when you’re in the market with more promises to sell than promises to buy, you’re known as having a short position, and if you have more promises to buy, you’re known as having a long position. In some ways this is similar to having a short position in stock or long position in stock (actually owning the stock), but the key difference is that there is an actual delivery date called for.

Now you too can win the $1 bet.

Politics Undid High Speed Rail

Before we go too far down this road discussing why high speed rail hasn’t been implemented yet, let’s not call it dead or flawed please. See for instance How Flaws Undid Obama’s Hope for High-Speed Rail in Florida and this quote from Rep. John Mica, Republican Congressman from Florida: “With Ohio, Wisconsin and Florida rejecting funds, and the California project also looking troubled, I don’t think the Administration’s so-called high-speed and expanded passenger rail program could have had a worse launch.”
Let’s recap our new governors in each of these states:

  • Ohio: Tea Party Republican John Kasich
  • Wisconsin: Tea Party Republican Scott Walker
  • Florida: Republican Rick Scott

Let’s recap our current political situation: Republicans don’t want to give Democrats – and President Obama – any positive victory.
I find it asinine that the three places Rep. Mica uses to illustrate the supposed failure of high speed rail, the plans were scrapped due to pure politics. All three projects were fully funded by the Federal government but the new governors needed to prove their worth to both the Tea Party and to deny the President a victory.
So it would behoove us to not forget the context, before we talk about failure.