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Questions tagged [hedging]

for questions that relate to hedging. A hedge is an investment position intended to offset potential losses/gains.

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Is it viable to use betting sites to “hedge” against world events?

These days gambling of world events, like a No-deal Brexit, or the results of an election is a fairly well established thing. (I imagine most people do it as a bit of a laugh) I am wondering if one ...
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1answer
49 views

Put Option Payoff Replication (Dynamic Hedging)

We know that we can use the below equation in the link to replicate the payoff of a call option using stocks and bonds. I am wondering what the equation would look like for a put option instead. In ...
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2answers
66 views

can't find suitable prices for zero cost collar

I was reading about the zero cost option collar strategy and was puzzled by the idea that one can find an at-the-money put option for the same price as an out-of-the-money call. I've looked at the ...
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19 views

Date Offsets in Eurodollar Hedging

There is this example in the Eurodollar Futures and Options Handbook by Burgharadt that appears to be inconsistent with the Eurodollar futures spot and settlement dates (Example 5.1): Suppose that ...
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106 views

Hedging investment contributions against short term fluctuations

When contributing to investments, short term fluctuations can hurt my contributions by a few percent or more. By short term, I mean on the scale of days to several weeks. I have found that a proper ...
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1answer
157 views

How can an EU citizen best hedge NASDAQ?

Background: I have a NASDAQ-heavy portfolio, and wanted to use the SQQQ ETF (Short leveraged Nasdaq-100 ETF) as a way to hedge on days when I expect the whole index to go down (one sub-question here ...
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1answer
123 views

How should a portfolio be managed in preparation for a financial crisis?

There is a more general question on preparation here, I am focused purely on investment. There is the conventional wisdom of don't try to time the market, and while I can't find the quote at the ...
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3answers
90 views

What hedging strategy can I use to approximate selling one half of an in-the-money option contract?

Apologies if the question title is confusing; I'll explain: I have one contract of an expensive call option which is in-the-money and expires next year. It has roughly tripled since I bought it, and ...
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430 views

Vegan hedge (shorting non-vegan, long vegan)

Edited in response to comments. How could I isolate a bet on veganism? (Assume that most of my wealth is already invested passively in diversified index funds and that for alpha with a different ...
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923 views

Delta hedge a put option without a long position on the underlying stock

I'm fairly new in this field so if I make a mistake please correct me. I have a beginners question about hedging. The delta of a put option is always negative so to delta hedge a put option I would ...
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2answers
132 views

Hedge against crypto currency / exchange risk

I have securities that have crypto-currencies (say, XBT/BTC) as a base currency and I want to avoid the tremendous volatility of this market. There are options for margin trading of sorts (shorts, ...
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78 views

Easy ways to hedge against debt overleverage and potential inflation as a personal economic agent

Every prediction is correct... at some point in the future. However, there are economical indicators that would be considered teaching points if a financial crisis were to occur at any point in the ...
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77 views

Hedging a portfolio using Bull Call Spreads

I'm having some difficulty understanding how one would hedge a portfolio using bull call spreads as outlined in the following paragraph ( Today is also a good day to revisit my suggestion for a ...
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3answers
243 views

Hedging for inflation

I have liquidated my entire portfolio. I now have cash, earning low interest with tax. I want to build back my position, but am waiting for the right time in the market, likely higher interest rates. ...
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2answers
141 views

Do any stocks benefit from a rise in interest rates?

I am planning to hedge against various financial risks by buying stocks that benefit from those financial risks. For example, I use quite a lot of electricity. I have already purchased stocks of ...
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94 views

Hedging against currency risk

Is there a hedging method against currency risk without lowering returns ? Classic hedging methods like forwards, futures options, all have a cost and don’t remove risk “for free”.
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77 views

Forex instead of futures as a hedge

Why don’t companies use forex trading as a hedge for their foreign exchange risk instead of futures ? Forex is much more liquid than futures, easier to have access to all your positions anytime, ...
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316 views

Hedging a long/short equity position with options?

If an individual was considering: LONG 100 AAPL shares at 150 SHORT 100 APPL shares at 150 How could he/she hedge the directional risk with options for those two trades? And what would be the ...
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114 views

Confused about eurodollar futures

A eurodollar futures contract is a cash-settled futures contract based on a Eurodollar Time Deposit and having a principal value of USD $1,000,000 with a 3-month maturity. Suppose that a a bank ...
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250 views

Hedging cryptos (or money in general)

I'm thinking about moving funds between various currencies. Right now I have USD ($) and Euros (€). My goal is to buy some Ripple (XRP), a cryptocurrency. Ripple can be traded against the €, the USD,...
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109 views

How do I hedge against currency risk without tying up a lot of capital?

Is there some kind of synthetic ETF that magnifies changes to exchange rates so that if, for example, the Canadian dollar increases by 5% with respect to the American dollar, the ETF will go up by 10% ...
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4answers
368 views

Is a currency “hedged” ETF actually a more speculative instrument than an unhedged version?

I've come across a few ETFs that are currency hedged. At first, the "hedged" part in the name seems to imply that this is somehow a safer investment than an unhedged version. However, take a look at ...
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4answers
597 views

How do I hedge stock options like market makers do?

I understand what an option is and I know that a market maker always publishes a bid and an ask price for which it will buy or sell options on the exchange. Now I heard that market makers always hedge ...
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368 views

Difference between Fair Value derivative and Speculation derivative [closed]

I understand the purpose of a fair value hedging instrument (preserve the fair value of an asset, liability, etc) and a speculation derivative (default classification if the derivative isn't ...
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1k views

Hedging against Exchange Rate Risk

I am an European, earning my salary in Euro and trading in US-securities. My strategies are a combination of momentum investments and monthly saving plans, where I invest a fixed percentage of my ...
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1answer
64 views

When hedging with CFDs, buying and selling the same financial instrument, don't you end up earning nothing respectively losing because of the spread?

When hedging with CFDs, buying and selling the same financial instrument, don't you end up earning nothing respectively losing because of the spread?
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262 views

Portfolio choices to hedge the risk of a real estate property

Let's say there's an individual who owns a condominium apartment in a US city, which is being rented out to a tenant. There's still a mortgage owed on the apartment, but there's positive net equity ...
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509 views

What's the formula for profits and losses when I delta hedge?

Say I buy a call option today, and I short the underlying stock with the delta. What is the value of this portfolio today? Then, one period later, say there's a change in the stock price. That also ...
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1answer
141 views

What exactly is the profit and loss of a portfolio?

I've searched all over the internet, but have not found the answer to this question. When we 'delta-hedge', we make the value of a portfolio 0. Now, we know that an approximation of the change in a ...
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1answer
157 views

How to invest in a specific market without investing in a specific company?

Let's say I am bullish on "Cloud Computing" and I want to make one investment, but do not want to invest in any specific company (e.g. Amazon). How could I invest soundly in the "Cloud Computing" ...
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2answers
147 views

Investing tax (savings)

I am software development consultant acting as a sole trader (self employed). My main expenses are ultimately paying my self and some hosting. Every time I have an invoice paid I put a percentage ...
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1answer
154 views

How to read options prices

I have been doing research on Options and thus far most of it has been relatively theoretical (mainly pricing models and put/call hedging strategies). Recently I have been looking into actually ...
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1answer
110 views

How to manage foreign investment allocations

I live in a country that has over the last year gone through some serious currency volatility based on political/economic uncertainty. I made a decision towards the end of last year to move a decent ...
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4answers
1k views

How to hedge an adjustable rate mortgage to lock in the current rate for the whole loan duration?

For a certain property my lender will only give an ARM (10 year fixed, 1 year adjustable afterwards), which is based off the U.S. Treasury rate. However I would really prefer a fixed rate mortgage. ...
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116 views

Using options to profit from underlying stock and warrants

I'm a suffering shareholder and have underlying stock and warrants (3 years remaining) and want to know how to profit from them using a option or hedge strategy. The current stock price is 30% below ...
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1answer
113 views

Costs around a modern crowd-sourced hedge fund

Consider the video from the front page of numer.ai. There, two statements are made 1) A hedge fund possesses a lot of expensive financial data [so numer.ai anonymizes this data before releasing it to ...
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2answers
157 views

Hedging against an acquisition of a stock

Let's say I have done research and have a view that a public company's stock will go down due to worsening fundamentals. So normally then, one can express that view by shorting the stock. However, ...
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3answers
109 views

Unemployment Insurance Through Options

Both Kyle Bass (from about 8:00 - 9:40) and Mark Spitznagel discuss an approach to finance where an investor takes a small percentage of their wealth and bets on an unlikely outcome, expecting to lose ...
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47 views

Are there any hedged international funds in India?

I live in India, and want to diversify into the foreign equity market, via a mutual fund offered in India. But I don't want to take on the currency risk. In some countries, funds are offered that ...
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1answer
127 views

Hedging your personal assets

I have been recently reading about how derivative instruments (options, forwards, future contracts) are used to protect your securities. I started wondering if its similarly possible to hedge your ...
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612 views

How do Related Hedges work?

I'm currently re-reading Benjamin Graham's book, The Intelligent Investor. In it (Chapter 15), Graham mentions some of the undertakings and operations his fund, Graham-Newman Corporation, was involved ...
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1k views

How does a portfolio of long stocks and short futures generate profits

When a portfolio manager goes long a basket of stocks (that make up an index) and hedges his market risk by shorting the corresponding index future, what is his source of potential profit? He cannot ...
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1answer
460 views

What are pros and cons of volatility trading over directional stock trading

Is it true or just my misconception that pro traders trade volatility while retail readers try to predict stock direction (unsuccessfully most of the time). What are the pros and cons of trading ...
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3answers
489 views

Is buying puts on a ten-year treasury ETF a good way to hedge mortgage rates?

I'm looking to hedge against rising thirty-year mortgage rates for the short term while we are house shopping. Would buying an appropriate number of put options on something like IEF (iShares ...
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1answer
105 views

How does a person with a large equity in a company hedge his risk

How people like Bill Gates , who has the bulk of their wealth tied up in MSFT shares, hedge their downside risk in case the share price tanks? If he were to buy put options like the rest of us, it ...
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174 views

How to hedge a long stock position that does not have options

I am sometimes tempted by the juicy dividends of some Canadian stocks because dividends are taxed favorably by CRA. One such company is RSI Problem is, I would like to protect the long position from ...
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175 views

Should I use futures or options to hedge my long SPY position?

If I am long 100 shares of SPY, what are some questions that I can ask myself to decide: Whether I should hedge by selling futures, or by buying put options? What are some pros and cons of each?
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87 views

What is the source of income for a hedged portfolio

Let us say I am long SPY and I sell the corresponding number of e mini s&p futures. Now, how will this portfolio profit? Will this grow at the risk free rate? The profit from the stock position ...
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1answer
191 views

How to hedge volatility decreases

My particular options positions are typically a long delta, and long vega. Decreases in implied volatility, or specifically the VIX, can drastically alter the profitability of my position. Is there a ...
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103 views

How can I diversify investments across currencies in ISA?

Is it possible to diversify investment in ISA by buying foreign currency, funds denominated in other currency than GBP, or other investment product that can hedge GBP value moves?