51 votes

Hedging vs just betting less

Let's say I win a contract to supply widgets. The contract is for $600K. Unfortunately I need 6 months to make the widgets but I've negotiated and I'll get paid $100K every month as I manufacture the ...
Robert Longson's user avatar
39 votes

Can I hedge my household expenses using the financial markets?

You don't consume enough of any one good to make hedging with futures economical. I'll present an alternate method - you hedge against risk in household expenses by setting a budget and sticking to it....
D Stanley's user avatar
  • 135k
31 votes

Hedging vs just betting less

There are many kinds of hedges and many different circumstances where one could employ them. Let's look at some random option scenarios for investing in Coca Cola (stock symbol KO): I buy 100 shares ...
Bob Baerker's user avatar
  • 76.4k
20 votes

Hedging vs just betting less

In its pure form, hedging is used to mitigate an existing risk that is inherent to some substantive (not just financial) activity. People work to provide for their families, so they often need life ...
nanoman's user avatar
  • 29.7k
16 votes

Hedging vs just betting less

In a nutshell, you typically would hedge only one direction of risk (the loss direction), leaving the gain direction open - you do want the gain. Betting less would reduce both directions of risk - ...
Aganju's user avatar
  • 37.7k
11 votes

Can I hedge my household expenses using the financial markets?

The largest personal cost you have is probably housing - and you can hedge the risk of real estate fluctuations without use of financial instruments. ie: you can buy your home. You might not consider ...
Grade 'Eh' Bacon's user avatar
10 votes

Hedging vs just betting less

Anybody can bet a smaller amount. You can reduce your risk to zero if you bet nothing. But then you'll gain nothing. As other posters have said, there are many forms of hedging. Sometimes they are ...
Simon B's user avatar
  • 10.4k
10 votes

Hedging vs just betting less

No, reducing the amount you bet is not the same as hedging. If you think of contracts with uncertain payouts as lotteries, then hedges change the lottery you are playing. Imagine you had two possible ...
Dave Harris's user avatar
  • 4,277
9 votes
Accepted

How do I replicate a shorted stock and protective call option using options only?

Your replication is valid but unnecessarily complex (incurring extra trading costs). You only need a long put with a strike of $105. short-selling a stock should be approximately equivalent to buying ...
nanoman's user avatar
  • 29.7k
9 votes

Can I hedge my household expenses using the financial markets?

In theory (but not practical in reality), you could hedge each of those expenses with various inflation swaps, futures, and other OTC products. Housing costs can be hedged by exposing to REITs ...
Jake Freeman's user avatar
8 votes

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

Currency hedge means that you are somewhat protected from movements in currency as your investment is in gold not currency. So this then becomes less speculative and concentrates more on your ...
Victor's user avatar
  • 21k
8 votes

Vegan hedge (shorting non-vegan, long vegan)

Sorry to sound snarky and harsh but this idea just isn't realistic. Why not buy currencies of democratic countries and short those of repressive regimes? Or buy companies that make toys and short ...
Bob Baerker's user avatar
  • 76.4k
8 votes

Hedging vs just betting less

Think of it like insurance. Insurance is inherently a loss making proposition - if an insurance company paid out more than it took in, it wouldn't exist. If you're a careful driver and own a car, you ...
Sobrique's user avatar
  • 181
7 votes
Accepted

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

You need to hope that a fund exists targeting the particular market segment you are interested in. For example, searching for "cloud computing ETF" throws up one result. You'd then need to read all ...
GS - Apologise to Monica's user avatar
7 votes
Accepted

What is the difference between these 2 S&P500 tracking iShare ETFs?

I had the exact same question, and unsatisfied with the responses here I got in contact with iShares and this was their response: IGUS is a legacy ETF, which as you correctly note, tracks a hedged ...
lmms's user avatar
  • 86
6 votes
Accepted

Hedging against Exchange Rate Risk

How can I calculate my currency risk exposure? You own securities that are priced in dollars, so your currency risk is the amount (all else being equal) that your portfolio drops if the dollar ...
D Stanley's user avatar
  • 135k
6 votes

Hedging against Exchange Rate Risk

You can calculate your exposure intuitively, by calculating your 'fx sensitivity'. Take your total USD assets, let's assume $50k. Convert to EUR at the current rate, let's assume 1 EUR : 1.1 USD, ...
Grade 'Eh' Bacon's user avatar
6 votes
Accepted

Is crypto an uncorrelated (or negatively correlated to traditional markets) asset class?

Investing involves an evaluation of risk in return for an expected amount of reward. At one end you have speculation where an investor takes on a large amount of risk with an expectation that the ...
Bob Baerker's user avatar
  • 76.4k
5 votes

Hedging cryptos (or money in general)

I don't think that you understand hedging properly; to hedge one instrument, no matter the security type, with another the hedging instrument must be negatively correlated with the instrument that you ...
MD-Tech's user avatar
  • 8,955
5 votes

Hedge against crypto currency / exchange risk

The sort of "hedging" you have heard about on business TV simply doesn't apply to such bizarre/thin/unusual markets; and it only applies when large wholesale amounts of the item in question is in play....
Fattie's user avatar
  • 13.8k
5 votes
Accepted

Gold and inflation

the inflation adjusted price is higher then the nominal, what is that about? With inflation, prices get higher over time. So $50 in 1970 is the equivalent of, say, $500 today (I'm not using exact ...
D Stanley's user avatar
  • 135k
5 votes

How do I replicate a shorted stock and protective call option using options only?

There are 6 basic synthetic positions relating to combinations of put options, call options and their underlying stock in accordance to the synthetic triangle: Synthetic Long Stock = Long Call + ...
Bob Baerker's user avatar
  • 76.4k
4 votes

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

Spreadsheets are your friend. You don't offer the dollar amount, so I'll offer $100,000 and you can scale it up to your numbers. $100,000 at 3% requires a payment of $421.60. Instead, pay $477.42,...
JTP - Apologise to Monica's user avatar
4 votes

I am trying to start a "hedge fund," and by that, I really just mean I have a very specific and somewhat simple investment thesis that I want to

Kudos for wanting to start your own business. Now let's talk reality. Unless you already have some kind of substantial track record of successful investing to show potential investors, what you want ...
Daniel Anderson's user avatar
4 votes
Accepted

Confused about eurodollar futures

If they short the contract, that means, in 5 months, they will owe if the price goes up (receive if the price goes down) the difference between the price they sold the future at, and the 3-month ...
dsolimano's user avatar
  • 456
4 votes

Hedging against currency risk

In a word: "no". Essentially, the old adage: You don't get something for nothing. applies. If there was a way of removing risk for free (i.e. without lowering returns), then that element of risk ...
TripeHound's user avatar
  • 9,171
4 votes

Vegan hedge (shorting non-vegan, long vegan)

I'm surprised at the extent to which some of these answers are making assumptions about OP's motivations in asking this question and that he/she must personally be vegan and want to use this "fund" as ...
Casey L's user avatar
  • 199
4 votes

Can I hedge my household expenses using the financial markets?

If your costs are in US dollars, I-Bonds adjust yield and TIPS adjust principal periodically using the US government's CPI-U measure of consumer price inflation, including food and energy. Whether the ...
user662852's user avatar
  • 8,389
4 votes
Accepted

Can a buy order be skipped when price rises rapidly?

If you place a limit order to buy and price gaps through your limit price, you will not get to buy additional shares. If you place a conditional order that becomes a market order if a certain price is ...
Bob Baerker's user avatar
  • 76.4k
3 votes

How do I hedge stock options like market makers do?

How do option market makers actually hedge their positions so that they do not have a price risk? You cannot complete hedge away price risk of a sold call simply by buying the underlying and waiting. ...
D Stanley's user avatar
  • 135k

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