Offset

Categories: Accounting

See: Defeasance.

You let slip that you think your spouse looks stupid in those new red boots. Immediately, you tell them how much you love their new haircut. One form of offset.

In finance, it involves creating a position directly opposed to a previous position you held. You buy 100 shares of Happy Flier, Inc. You get nervous about the company, so you decide to offset the position. This decision can manifest itself as simply selling the 100 shares...basically, undoing the original position. Or you can get tricky about it. You can use options or futures to set up a hedge. You develop an offsetting position that doesn't directly unravel the original position, but still protects you if the stock should suddenly drop.

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Finance: What is Defeasance?21 Views

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finance a la shmoop what is defeasance? oh it's been a tough slog for our [Superman flying through the air]

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friends Superman competition from x-men Iron Man Facebook

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yeah he's just cutting well tired so needing something else to do he finally

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built a home in his Fortress of Solitude nice four-bedroom ranch house with an [Ranch house bedrooms appear]

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enclosed patio all new steel appliances and an open-concept kitchen for you know

00:28

when the Louis comes by or some of the guys but work has been slow so we had to

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take out a mortgage yeah a million bucks and well you know he wanted a nice man

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cave although Batman still rules the roost in

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that department but we're not gonna go there [Batman in a cave]

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anyway the mortgage cost 6% a year what he had bad credit all those buildings

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Superman wrecked yes someone's gonna pay for him right so the million bucks cost

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60 grand a year to rent and that rent well it kind of stresses him out he

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wants to not have to worry you know so what does he do well he buys bonds yeah

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Superman buying bonds he had some extra cash left over from well when the city

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of Metropolis rewarded him financially for you know reversing time to save that [Earth spinning]

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busload of kids in fact he had 800 grand just sitting around and the bonds he

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bought had a yield of 7% or said another way he collected rent on his eight

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hundred grand of 56k a year and that helped a ton because that 56k covered

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almost all of the 60k he had to pay on his mortgage and note that Superman just

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cuz he's you know Superman he didn't pay any taxes so gross is net here people so

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said another way soup here defeased all but four grand of his mortgage

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obligation in buying those bonds which offset his monthly cash costs and why

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wouldn't he have just paid off the mortgage well for this story there's a

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prepayment penalty meaning he's not allowed to pay off early without all

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kinds of cash penalties you know in the bank loaned him the money they wanted to

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be certain to get the minimum amount of interest payments over the shortest

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possible time period you know to make up for all that perceived risk [Superman cartoon moving steel gurder]

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considering all the high-powered enemies he's you know facing all the time

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because yeah when it comes to risk it's a you know kind of Superman's kryptonite [Superman screaming]

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