Hedging

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CA Nallathambi Srinivasan

CA Nallathambi Srinivasan (Querist)
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21 January 2009 What is mean by Hedging? Please clarify in simple terms.

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21 January 2009 HEADGING IS A Method of transferring Risk to permit the Risk Bearer to assume two offsetting positions at the same time so that, regardless of the outcome of an event, the risk bearer is left in a no win/no lose position.

For example, in the options market, a stock owner of an underlying stock can write calls or buy puts. In the same options market, the short sellers of the underlying stock can buy calls or write puts.