Hedging Strategies

Protective put hedging acts as insurance for a long stock position. Traders buy put options to cap potential losses. This strategy defines maximum downside risk.

Collar hedging combines a protective put with a covered call. It provides downside protection while generating income. This strategy defines both maximum gain and maximum loss.

Futures hedging mitigates price risk in commodities, currencies, and interest rates. Traders use futures contracts to lock in prices. This strategy provides a cost-effective hedge.

Traders use synthetic short positions to hedge long stock holdings. This strategy replicates a short sale without directly selling shares. It offers flexibility and capital efficiency.

Ratio spreads offer customizable downside protection for long stock. They involve buying fewer options than sold, adjusting risk. This strategy balances cost and protection.

Reverse iron condors provide hedging against significant price movement in either direction. This strategy profits from increased volatility. It offers defined risk and reward.

Calendar spreads use different option expirations for hedging. This strategy profits from time decay and modest price movement. It offers cost-effective protection for long-term holdings.

Delta hedging protects a portfolio's value from price movements. Traders adjust hedge ratios dynamically. This strategy requires constant monitoring and rebalancing.