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Hedging Bets on the Net

Cramer offers an insider's view on how institutions can sell insurance and derivatives to hedge downside exposure to the Net.

Could there have been hidden derivative sellers of the Net recently? In the past few days, several Wall Street firms have been offering insurance to insiders anxious to lock in gains, while other firms have offered derivative products, like the one mentioned in today's editions of

The Wall Street Journal

, that allow you to hedge downside exposure to the Net.

Having sold products like this, and had them at one time constructed for me, allow me to give you the insider view on what's going on. These products can't be sold unless they are hedged themselves, which means

these institutions are shorting these stocks aggressively themselves to protect themselves from getting stung by the insurance they are offering.

It's pretty simple. Whether you are a bookie or an insurance company, you have to lay off risk. It is no different if you are a brokerage house. If everybody takes you up on your insurance and the storm hits, you are wiped out as surely as if you are in the storm yourself.



story -- replete with a cheap shot at


unbefitting that publication -- left out entirely, for instance, how an issuer could float an Internet bond "without anxiety." It can only be done through the type of hedging I am describing.

Does that mean we can rush out and buy the


? No, it is just important to understand

where the selling is coming from

and why it is coming. When the hedgers hedge, they tend to do it with the deftness of a Triceratops wandering through the

Short Hills Mall


Lots of people -- and stocks -- get hurt in its path.

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Random musings

: Came across an old sell recommendation of

First Union


last night by Tom Brown, late of


and now of


. In it, point by point, were all of the things that could -- and did -- go wrong with First Union, including the ridiculous


overpay. Of course, it cost Brown his job to be honest, which says something repulsive about Wall Street.

Which is why, increasingly, I expect that if you want to read the truth, the actionable truth about Wall Street, you will have to come to places like

. Brown could be

right as rain

and keep his job if he were working at



James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at