What are hedging options in trading?
An example of an AI chatbot conversation about hedging options in trading.
What are hedging options in trading?
Hedging options are financial instruments used to reduce the risk of adverse price movements in an asset.
How do they work in practice?
In practice, traders use options to create positions that offset potential losses in their primary investments.
Can you give me an example?
Sure! If you own shares of a stock, you might buy a put option to sell those shares at a specific price, protecting against a drop.
What are the risks involved?
The main risks include the cost of the options and the possibility that the market moves in your favor, making the hedge unnecessary.
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