Glossary of Option Terms: Hedge
Hedge
Definition: Reducing loss by taking a position opposite the current position being held in the market. For example: Car insurance is a way that drivers hedge against getting into a major accident. You never want to "get your money’s worth" on your car insurance policy… but it serves as protection against the worst.
If we think the market’s going down, we put $100 on a downside play… and say $20 on an upside play in case we’re wrong. Oftentimes the hedge covers us until an expected move happens.
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