You know, as I was sitting there on the porch of a North Carolina cabin, in the chilling yet refreshing air, I was looking out at the magnificent scenery which included the trees, the brush, the light snow which had fallen on the ground, and a panoramic view of the valley below. It was truly picturesque.
As I was looking out, it occurred to me that everything I was seeing from the balcony was somehow attached to or part of the planet. The trees. The plants. The animals. Moss. All of it. It was all in some way attached to or part of the planet.
And it gave me this curious feeling as I, in essence, looked at these trees as if they were fingers coming out of the ground, and wondered what was different about those trees and the house we were occupying in the midst of those trees.
The house, on the other hand, was constructed not as fingers sprouting from the earth, but from the actual craftsmanship of human beings planted on the earth. While I know there is certainly a continuity to the process, there is something different when we have human intervention in the objects which are created.
As I was taking a look at it, it occurred to me that the house, potentially made from trees, is somehow different than the trees. The tree is an authentic extension from the earth; the house is an object made from the ingredients of the earth.
I don’t know whether that distinction makes any difference or not, and I’m not also sure why any of that entire discussion is even relevant to us. However, what appears at first glance is the house is a derivative but the tree is the genuine article: the real McCoy. Why a derivative? Because, as a derivative, it has certain attributes that come from the tree, but the house derives from the tree, it isn’t the tree.
If I were to take a look at the house versus the tree, as well as all of the derivatives, it seems to me there are certain attributes and characteristics we can explore, regardless of whether we are talking about a house, an option, a futures contract, or any other type of derivative instrument. I would posit the following to be true:
1. The derivative can usually track relatively closely its origin, but it is never the same as its origin.
2. A derivative can amplify a certain set of characteristics of its origin, because only a certain set of characteristics of the origin are selected for any one particular type of derivative.
3. A derivative does not have a life separate from its origin and will inevitably erode.
4. A derivative only has existence within the definition first given it. It can not survive beyond that definition. A derivative can carry a specific definitional purpose, different than the purpose of the origin. No matter what the derivative is, time will always matter, whereas time tends not to matter when it comes to the origin.
5. A derivative can function based on laws which are different than the laws of the origin, but those laws may never be inconsistent with the laws of the origin.
Now, lest you think I have gotten hold of some particularly powerful mushrooms, I hasten to add that this stream of consciousness observational pattern is, in essence, what I do for kicks. However, it does signify to me in some meaningful way. That we best tread lightly, as the derivatives we are.
Original writing date: December 12, 2005