Buying a Put Option with Concert Tickets: Woodstock '99

The original Woodstock Festival in 1969 is legendary.  Many recall it fondly for its peace, love, and iconic performances. It seems that over the years, many have forgotten that it was also unsanitary, drug-fueled and sort of gross.  But still, it remains iconic.

So, when Woodstock '99 was announced, many believed and hoped it would capture only the magic of the original and not bring forward the downside. With that belief, they thought that ticket prices would soar!

Let's imagine you had a skeptical friend whose recollection of the original was mixed.  He had some good memories, and some not so good memories.  

But he was willing to invest.  He buys a ticket for $300, he does want to limit his downside.  He thinks there’s a chance that the ticket price might go up, but he fears that the price might go down. 

So he offers to pay you $20 now for the option to sell you his ticket for $250 anytime before the festival. 

By accepting, you're obligating yourself to pay your friend $250 for his ticket (which he paid $300 for), when he says “now!”.  And for burdening yourself that way, you are getting $20 which you get to keep no matter what.

And, by accepting, you are selling your friend an insurance policy. If the event looks like it’s going to go south, and ticket prices plummet below $250, he can offload his ticket to you for the agreed price.  This limits his loss. If the price goes up, then he can always sell the ticket for more than the $300 he paid for it.  His upside is unchanged.

Well, as history shows, Woodstock '99 was marred by logistical problems, reports of assaults, and fires. The festival's reputation tanked.  Tickets became far less valuable. Your friend, foreseeing this potential outcome, exercised his option to put his ticket to you (sell you his ticket) for $250, thus only incurring a total loss of $50 ($300 initial ticket price minus the $250 you paid, minus the $20 he paid for the option). 

On the other hand, you're now stuck with a ticket you paid $250 for, which is now worth significantly less.

In this scenario, your friend effectively bought a "put option" on their Woodstock '99 ticket, and effectively insured against its decreased value.

In a losing market, many people lose.  But some lose more than others.

And, some people can win and win big.

Another look at Woodstock ’99 next.