Wednesday, July 11, 2018

Meaning of "Hedge".....Its actually Simple

When you try internet search for various option strategies , the mostly or commonly used word is "Hedge" which has been portrayed as kind of 'Magic' which may not be true. I would say its a very overloaded term in trading universe.

To me hedge positions are just a delay for making the loss from Primary position. I usually tries to divide my trade in categories 1) Primary Trades and 2) Balancing Positions. The idea is very clear that you can not earn profit from second one in any situation.

I like the term "Balance" than 'Hedge' as I think asymmetrical balanced positions are always have higher probablity alpha than technically hedge positions. If you take positions near to primary then we can say it as more balanced than far positions to primary BUT, alpha probability is inversely proportional to this balanced options hence we need to carefully do balancing act and thats the KEY.

As always, I am trying to be very short and just my thoughts!

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