Hedged!!

Sometimes life is very UNHAPPENING...I guess that's how i can explain my past few days. With no time to sit and relax and maybe introspect, one is forced to think only about assignments, submissions, deadlines, exams...

At occasions one would hope for some off-loading with time, but things keep piling on.

a couple of days ago i wrote a derivatives certification paper. It had an interesting hedging concept which can be briefly stated as:

When you are feeling bullish about markets, you tend to hold stocks, but to eliminate high loss risks in case your assumptions aren't true, you sell Call options (which predict fall in stock prices). Thus you hedge possible losses in stocks by some profits in Futures.

The hedging concept though does minimizes the risk but it also diminishes returns in case market went bullish.



TOO MUCH OF GYAAN I KNOW.....but following herd mentality that is Engg. degree from good college then MBA from premier institute is just like selling futures/options as mentioned above. Somewhere we know that maybe this is not the thing you would love to do for your whole life, but because of low level of trust in own abilities (prediction of bullish markets), we either sell stocks (leave the quest of our own ambition) or hedge it with selling futures (herd protocol).

On the contrary the people who trust their market prediction abilities (called speculators) buy futures/options to compliment their gains from rise in stock prices.

These people who are high risk takers, chose the path they desire theirs to be and end up either being a high achievers or incur losses which are huge and sometimes may be irreversible.


I just wish at the end (when option/future expires) , i would end up being on positive side......