Derivatives for the small investor

Update 5/22/05: One of the most important things a small investor may need to hedge against is a fall in t0day's overinflated housing markets.

In addition to HedgeStreet (below), which is up and running, a usenet thread suggested two articles:

• Ken Harney – New securities product to hedge your house’s value
• and this WaPo article: How to Hedge The Value Of Your Home

The products referred to in the articles are not available yet (Macro Markets LLC is a dismal holding page), so for now HedgeStreet seems to be the only current option for hedging home prices. I don't know how retail investor friendly these products will be. In practice retail investors may need a few months of protection (transient ownership of two homes) or a couple of years of protection (short term ownership or plan to sell prior to fund retirement).

Marginal Revolution: Derivatives on housing prices

Macro Securities Research, a company affiliated with Robert J. Shiller, the Yale economist, has reached an agreement with the Chicago Mercantile Exchange to list pairs of derivative instruments that are essentially index funds linked to home prices in certain markets. One instrument in each pair will rise as its market index rises; the other will rise as the same index falls. That will let investors bet on the direction of housing prices. Similar, but less sensitive, vehicles are being offered by HedgeStreet, a firm in San Mateo, Calif., that offers small-scale derivatives speculation online.

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I wonder how the accounting will work. I'd rather use my 401K investments to hold these small-investor derivatives.