<prompt> Human: I just watched the movie the big short about the 2008 financial crisis. In it a few investors buy credit default swaps, which if I understand correctly are insurance on a bond. But strangely when the bonds failed, instead of filing a claim like you would with normal insurance company they all frantically proceeded to sell them. It doesnt go into much detail about who they were selling them to or why they had to sell them in the first place. I am trying to figure out what exactly happened  <response>: Lets say you thought someone under 4 feet tall was going to lead the NBA in scoring and some betting site laughed at you and refused to take your bet. But you persisted and persisted and waived enough money in their face that eventually they gave you 100,000 to 1 odds. You bet 10k at those odds so you stand to make 10,000,000,000 if your bet pays off.As the season starts some previously unknown 311 bolt of lightning comes into the league and begins scoring at a high rate. All of a sudden your ticket is worth significantly more than 10k because the odds have improved significantly in your favor. As the season winds down its looking very likely that your Lilliputian phenomenon is going to lead the league in scoring. You stand to make 10 billion. But the problem here is your betting site doesnt have 10 billion. They cant cover their obligation and so there are real scenarios where you walk away with 0.Whenever there are a range of scenarios there is a secondary market that is willing to take on that risk if you give up some of your upside. Maybe a third party thinks your odds of actually collecting are 5050 and theyre willing to give you 1 billion to buy the ticket that may be worth 10 billion or it may be worth 0.Thats the situation these folks found themselves in. There was a real possibility that the bet they made would pay off so big that their winning tickets could be worthless so they sold those winning tickets at a discount to others who were better equipped to manage the risk. 