Tag: Hedging

Options Trading Strategies and Hedging

Options Trading Strategies and Hedging

Options trading is based on some rational motivation generally involving an edge or the need for hedge. An edge is what determines a trade positive expected value; usually, it is some kind of correct and not widely available information. Instead, a hedge is a trade offsetting an existing risk of another investment. Finally, trading should…

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A Primer on Financial Derivatives

A Primer on Financial Derivatives

Financial derivatives are often used for commodities, like corn, oil, gasoline, or gold, and for currencies, often the U.S. Dollar abd the Euro. However, there are derivatives based on stocks, bonds, interest rates, and indices. Companies use derivatives to lower their operational risk for the delivery of raw materials, the changes in exchange rates or in interest rates. Trading requires a small down payment (margin) and usually consists of rolling positions (contracts are liquidated by another derivative before coming to term).

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