Hedging With Puts And Calls In times of so much so of volatility and uncertainity in the market, some investors prefer turning their ways to hedging using puts and calls versus stock to reduce risk. Hedging can also be promoted by hedge funds, mutual funds, brokerage firms and some investment advisors. Hedging with puts and calls can also be done versus employee stock … [Read more...]
What is a Futures Contract?
Futures traders fall into two categories: hedgers and speculators. The primary economic purpose of the futures market is for hedging, which is buying or selling futures contracts to offsets risks of changing prices in the cash markets. Hedge traders, such as large commercial firms that may actually take delivery of certain commodities, like coffee or wheat, use futures … [Read more...]
How to Design Hedges?
The actual design of a hedging strategy boils down to a simple, three-step process: Identify Suitable Securities A good hedge often uses the cheapest possible security that offers the protection needed. For example, in the retail situation above, using put options on the retail ETF may be cheaper than purchasing a full short position, while offering the same benefits as … [Read more...]
Why Are Stock Options Important?
Stock options offer investors limited downside in pursuing speculative trading strategies. Stock options also offer the ability to hedge existing positions and to minimize risk. Stock options are important in many advanced trading activities. Investors can make money as both a call writer or a call seller depending on market conditions. Stock options enjoy great leverage with a … [Read more...]
Reasons to do Derivative Trading
If you are thinking of a trading option outside traditional stocks and bonds, derivatives trading can be a good option. Derivatives pay off over a period of time which is subsequently based on the performance of assets, interest rates, exchange rates, or indices. The payoff can be either in cash or in kind(assets )and vary, of course, by performance and timing. In addition to … [Read more...]