Hedging Stategies Flashcards
1
Q
What is a hedging strategy?
A
It involves BUYING options contracts to protect a long or short STOCK position
2
Q
What is the purpose of buying a PUT when you are long stock?
A
Buying a put so that the stock can be sold at the strike price protecting a loss in a FALLING market
3
Q
What is the purpose of buying a CALL when you are short stock?
A
Buy a call so that the stock can be purchased at strike price protecting against a loss in a RISING market
4
Q
What are the characteristics of Longing a Put to hedge a long stock position?
A
They are the exact same as buying a call (unlimited gain, etc.)
5
Q
What are the characteristic of Longing a Call to hedge a Short stock position?
A
They are the exact same as buying a PUT
