First, you assume that speculators are in fact overly driving prices up, which is disputed. I think speculators are playing a role, but I’m not sure how large. It’s all conjecture on my part. What do I really know about the commodities market?

Second, you assume you can dump enough capital into short positions that you bring down the underlying price. If you could, it would take a lot of capital. I mean, it would take a lot of capital. What you are really trying to do is “spook” the oil market. You make speculators think, “all of these people are betting the price will fall, what do they know that I don’t”. That is the thinking at least.

What happens if you fail and the price goes up and you’re stuck with all of these shorts? The downside is theoretically infinite.

A short position would be, for example, a future with the obligation to sell oil at $130. What happens if it goes to $150 or $160? The sky is the limit for losses. The profit on the other hand is capped at $130. On top of that, you still need to buy oil products at the new, very high prices.

There is no hedge if an airline goes short in oil unless my understanding of shorts and longs is switched.

Some airlines will take long positions in a basket of petroleum based commodities. You can’t buy a call option for jet fuel. You have to buy call options/futures/forwards for oil and other traded fuels and make the basket of these long positions to hedge your exposure. It’s all done with regressions and correlations.

Going long means you profit when the price goes up. Going short means you profit when the price goes down. Airlines already profit when the price goes down (margins go up). Going short with derivatives just doubles exposure.

Am I right or wrong?

Wait a minute….”

He wants the airlines to double down on their position? Their operations already make them short. Risky move, very risky.