[iav]

There needs to be a buyer and a seller for any trade. You don't know the stories of the other participants in those transactions - maybe if they didn't get rid of their oil on that day for pennies (or negative dollars), they would have been forced into far worse consequences, defaulted on their legal obligations, or forced into breaking a trade. If you read the terms of the futures market, it is very specific in how you must take delivery and where, and failing to fulfill those requirements exactly would result in way worse consequences (imagine an oil trader who is banned from trading... yeah way worse than losing a bit of money). There is a set of counterparties out there that collectively decided that paying those guys $500M was better than their next best alternative.

[Ecco]

Super interesting. Thanks!

[pjc50]

A good angle to think of for options trading is that writing out-of-the-money options is like selling insurance. Occasionally you have to make a big payout, but the rest of the time you're getting small payments.

Some of the market participants were effectively insuring others against the price of oil dropping too low.