Individually rational risk-shifting trades become immoral and systemic-risk threats if widely practiced.

Evidence

It could be perfectly rational for an individual trader to sell low-strike-price puts cheaply, at unskewed prices closer to the implied volatility of other options, without taking the difficult and expensive steps needed to provide a hedge that would be adequate in an extreme crisis. He or she could earn healthy profits; there has been no repeat of 1987; and, if there were, the losses of a bankrupt trader are borne by others. Yet if such trading were engaged in too widely it would create a systemic risk: another 1987 could undermine the very foundations of the options market. To trade that way is, even if individually rational, seen as immoral. It is to be a “shit-seller,” and it has been kept in check by the options market, its clearinghouse, and its regulator, the SEC, through mechanisms such as risk-based margining. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 199

Categorization

• XREF: The collective-action/social-dilemma framing of systemic risk echoes the performativity and market-constitution themes central to this reading purpose on financialization. — connects to: Systemic risk is emergent and irreducible to the sum of individual risks — Mark Blyth, Austerity: The History of a Dangerous…, 134; Drones create a moral hazard that shifts risk onto others. — Grégoire Chamayou, A Theory of the Drone, 588; Financial speculation externalizes its risks and costs onto the powerless — Max Haiven, Cultures of Financialization, 332 (+3 more)
• DEFINE: Explains the traders’ term ‘shit-seller’ as one who sells naked, unhedged low-strike puts for profit while externalizing tail risk onto others.

Broader Connections

• Individual rational self-interest can systematically produce collective disaster. #corroborates (0.95)
• Drones create a moral hazard that shifts risk onto others. #corroborates (0.85) — Grégoire Chamayou, A Theory of the Drone, 588
• Securitization names a mindset that abandons actual security for risk-juggling virtuosity #corroborates (0.80) — Max Haiven, Cultures of Financialization, 258
• Financial speculation externalizes its risks and costs onto the powerless #expands (0.78) — Max Haiven, Cultures of Financialization, 332