Strategies

Hedging

Hedging

Hedging is a strategy to get portfolio protection. A risk management strategy employed to offset losses in investments by taking an opposite position in a related asset, it protects an investment from risky situations that might lead to financial losses. As it does not guarantee complete assets protection, Hedging makes sure that losses will be mitigated by gains in another investment. The reduction in risk provided by hedging also typically results in a reduction in potential profits. Hedging strategies typically involve derivatives, such as options and futures contracts.

Asset Classes

Future
Option

Strategies

Asset Protection
Diversification

Terms

Arbitrage
Derivative
Risk Analysis

Mentioned by the Following

Entities

Aspect Capital
Bannockburn Global Forex
Dorsey Asset Management
GFM Asset Management
Greylock Capital Management, LLC
Hackett Financial Advisors
Hull Trading Company
Record Currency Management
Renaissance Technologies
Societe Generale Corporate and Investment Banking
Tocqueville Bullion Reserve
Winhall Risk Analytics

People

Adam Grimes
Amelia Bourdeau
Andreas Clenow
Ari Paul
Arik Ben Dor
Ashraf Laidi
Blair Hull
Bob Iaccino
Bob Savage
Brett Friedman
Carley Garner
Cem Karsan
Christian Fromhertz
Christine Sandler
Dan Passarelli
Daniel Lacalle
Daren Riley
David Shimko
Davis Edwards
Dean Curnutt
Denise Shull
Diego Parrilla
Don Singletary
Donald van Deventer
Douglas Borthwick
Fischer Black
Francesca Taylor
Francis Hunt
Galen Burghardt
George Pruitt
Gianna Bern
Greg Williamson
Guillermo Dumrauf
James Clunie
Jason Buck
Jim Dunn
Joe Perry
John Netto
Lex van Dam
Mahmood Noorani
Maleeha Bengali
Marcus Ashworth
Mark Newton
Matt Rowe
Max Wolff
Maziar Minovi
Meb Faber
Michael Covel
Michael Gettings
Michael Kahn
Michael Lebowitz
Mish Schneider
Moorad Choudhry
Patrick Perret-Green
Rhona O'Connell
Richard Sandor
Scott Skyrm
Shawn Hackett
Slobodan Jovanovic
Tariq Dennison
Theodore Barnhill
Vincent Catalano
Xavier Rolet

Positions

Advanced Financial Risk Management
Advances in the Valuation and Management of Mortgage-Backed Securities
Bank Asset and Liability Management
Beyond Value at Risk
Building Wealth with Silver
Bullsh*t Free Guide to Butterfly Spreads
Create Your Own Hedge Fund
Dynamic Hedging
Equity Derivatives
Eurodollar Futures and Options
Fixed Income Markets
Get Rich with Options
Handbook of Mortgage-Backed Securities
Handbook of Portfolio Management
Hedging Commodities
Higher Probability Commodity Trading
How To Hedge
Leveraged Finance
Mastering the Commodities Markets
Measuring and Controlling Interest Rate and Credit Risk
Option Volatility and Pricing
Options Strategies for the Stock Investor
Perspectives on Interest Rate Risk Management for Money Managers and Traders
Professional Perspectives on FIPM
Risk Management in Trading
Stock Options Trading
Strategic Risk Taking
Tail Risk Hedging
The Basics of Financial Econometrics
The Futures Bond Basis
The Handbook of Asset/Liability Management
The Handbook of Fixed Income Options
The Market Taker's Edge
The Treasury Bond Basis
Vasuda Healthcare Analytics

Strategies

Derivative
Risk Management



Equity Hedging Strategy Using Beta

  1. Find the Beta of each stock in the portfolio
  • Find the Beta or the portfolio (multiply weight of each stock in portfolio by its individual Beta and sum)
  • Find a mix of two common market ETFs with different Betas to match your portolio Beta:
    1.    Ex.  SPY has Beta of 1.00, QQQ has Beta of 1.19
    2.    Ex.  Solve for X:  X * (1.00) + (1 - X) * 1.19 = 1.12 ;   X = .37
    3.    Ex.  37% of Hedge should be SPY, 63% of Hedge should be QQQ 
  • Buy put options on the respective amounts from step 3 to help hedge your portfolio
    1.    Ex:  Buy 37,000 notional of SPY puts
    2.    Ex:  Buy 63,000 notional of QQQ Puts