Jjacks,
When airlines hedge the cost of fuel, they're hedging something that they know about. If fuel costs "X" then profit is "Y". So they hedge to keep their business going. But when you buy puts on the competition, you're making a bet on another company's management, labor, etc. not your own fuel costs.
If the company wanted to hedge their own business, something that they supposedly know about, buying puts on their own company would make sense to me - assuming that's legal since I'm a trader not a fundamentalist, hence I have no clue.
I think it's an apples and oranges comparison. You don't. So I guess this is where we're going to have to respectfully disagree and leave it at that.
As for your example of Wells Fargo buying baskets of puts in C, JPM, BAC, etc., you have the benefit of hindsight during a Black Swan event which happens very infrequently. Yep, it would have been a good idea this time and would "keep the company itself together through tough times". But how often do company survival threatening events occur? You think it's always a good time hedge. Evidently, companies do not. And on the individual level, I believe it's better to go to cash and use puts for profiting from the down move, not hedging it.
And I don't think that AIG and others are failing because they were unwilling to change. Simplistically, deregulation and change is what caused the sub prime crisis. Not understanding the risk of the "new paradigm" is what buried them.
When airlines hedge the cost of fuel, they're hedging something that they know about. If fuel costs "X" then profit is "Y". So they hedge to keep their business going. But when you buy puts on the competition, you're making a bet on another company's management, labor, etc. not your own fuel costs.
If the company wanted to hedge their own business, something that they supposedly know about, buying puts on their own company would make sense to me - assuming that's legal since I'm a trader not a fundamentalist, hence I have no clue.
I think it's an apples and oranges comparison. You don't. So I guess this is where we're going to have to respectfully disagree and leave it at that.
As for your example of Wells Fargo buying baskets of puts in C, JPM, BAC, etc., you have the benefit of hindsight during a Black Swan event which happens very infrequently. Yep, it would have been a good idea this time and would "keep the company itself together through tough times". But how often do company survival threatening events occur? You think it's always a good time hedge. Evidently, companies do not. And on the individual level, I believe it's better to go to cash and use puts for profiting from the down move, not hedging it.
And I don't think that AIG and others are failing because they were unwilling to change. Simplistically, deregulation and change is what caused the sub prime crisis. Not understanding the risk of the "new paradigm" is what buried them.
In normal times, banks get a large percentage of their profits from fees so there's good reason for them to worry about getting their stupid $10 (g). But here we are in agreement, their ignorance cost many their jobs, their retirement funds and in many cases, their companies.