i understand what a CDS is on the fundamental level. but i was wondering something.
i started watching small clips of The Big Short. And the big concept in the movie is that people are shorting the housing market. Their choice of how they go about shorting it is by buying CDS. Meaning they pay a premium every month to the writer. But in turn, if the underlying of the CDS (in this case, the mortgages) default, the value of the CDS sky rocket. in which the holder of the CDS can now sell them at a big profit.
but i guess what i do not understand is, in the scene where Ben (brad pitts character) is in the pub at the end of the movie, he is now offloading their CDS. it seems like he is just looking for any bank that is wanting to buy them.
why would banks buy it from him in the first place? the scene shows Ben knowing that the bank he is talking to is obviously wants to buy it. shown by ben basically saying ” you dont like it, then hang up…. thats what i thought”. when the guy on the line didnt hang up.
at the time of the collapse, I get why people were STC CDS positions. since now its worth alot and their bet played out. but what positions were people in that were buying to open CDS positions? Or were all buyers actually BTC their CDS positions and not BTO?
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