OK…I spent more than 6 months reading on complex mathematical economical models, but because of that I totally lack the terminology behind the microecomics. One such thing is the futures/options hedging….
So, as far as I understand it – it sounds too good to be true, but do I miss something???
I understand it…like this example:
An investor buys 100,000 eur/usd units. The price is 1.4000.
However, the investor fears of lower price of 1.3900 and hence she puts call option on that price…or a future contract.
If the price reaches 1.3900 she(the investor) exercises the option and hence she is insured and doesn't lose anything.
If the price goes up – she gains money.
Now, I read about delta hedging and this doesn't sound that complex too, thuogh I need an hour or 2 to completely understand it.
I also see that you can get advantage from options/futures in many instruments. Such as:
Options,
CFD (illegal in USA)
Forex
But not commodities???
Pls. explain in 1-2 sentences your view…
Thanks alot in advance!
i don't think you understand this at all. you probably need a simpler book.
"she puts call option" makes no sense at all. if you bought euros and feared a drop in value you might buy puts or you might sell euros in the futures market to hedge. you might hedge all of your euros or maybe only part of them or you might not want to hedge at all. there are many possibilities and some are complex. you need to understand basic hedging first.
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