Hedge


Also found in: Dictionary, Thesaurus, Medical, Legal, Acronyms, Idioms, Encyclopedia, Wikipedia.
Related to Hedge: hedge fund, hedge bets

Hedge

A transaction that reduces the risk of an investment.

Hedge

To reduce the risk of an investment by making an offsetting investment. There are a large number of hedging strategies that one can use. To give an example, one may take a long position on a security and then sell short the same or a similar security. This means that one will profit (or at least avoid a loss) no matter which direction the security's price takes. Hedging may reduce risk, but it is important to note that it also reduces profit potential.

hedge

A security transaction that reduces the risk on an already existing investment position. An example is the purchase of a put option in order to offset at least partially the potential losses from owned stock. Although hedges reduce potential losses, they also tend to reduce potential profits. See also perfect hedge, risk hedge, short hedge, special arbitrage account.
Case Study A hedge that limits potential losses is also likely to limit potential gains. In May 1997 Georgia entrepreneur and billionaire Ted Turner entered into an arrangement whereby Mr. Turner had the right to sell four million of his Time Warner shares to a brokerage firm at a price of $19.815 per share. At the same time the brokerage firm acquired the right to buy the same four million shares at a price of $30.45. This particular hedge, called a collar, established a minimum and maximum value for four million shares of Time Warner owned by Mr. Turner. In other words, the former owner of the Atlanta Braves, Atlanta Hawks, CNN, and superstation WTBS acquired the right to obtain at least $19.815 per share by agreeing to give up any increase in value above $30.45. Time Warner stock subsequently skyrocketed when America Online acquired the firm at a price nearly triple the $30.45 stipulated in the agreement. Thus, the hedge ended up costing Mr. Turner approximately a quarter of a billion dollars. On a positive note, the four million shares represented less than 4% of Mr. Turner's total holdings of Time Warner stock he had acquired when the firm bought his Turner Broadcasting several years earlier.
References in classic literature ?
We passed into a tangle of gooseberry bushes where, at his statesmanlike example, we crawled on all fours, and regained the hedge.
They dived into bushes and thick grass like defeated men pursued; and the great cocked hats of the mounted gendarmerie were seen passing along above the broken hedge.
After that I retreated again to the country--walked back till I found a convenient hedge down a lane off the highroad--changed my upper garments behind it, and emerged, bashful, black, and reverend, with my cotton umbrella tucked modestly under my arm, my eyes on the ground, my head in the air, and my hat off my forehead.
But in this case they will answer in the affirmative with all their lives; the enemy, crouching in double ranks behind the stone wall and in cover of the hedge, will wait until it is possible to count each assailant's teeth.
So the boundary hedge zigzagged down the hill at right angles, and at the bottom there was a little green annex--a sort of powder-closet for the cows.
Why should that old guinea-fowl be lying out in the hedge just at this particular moment of all the year?
The further he rode, the happier he became, and plans for the land rose to his mind each better than the last; to plant all his fields with hedges along the southern borders, so that the snow should not lie under them; to divide them up into six fields of arable and three of pasture and hay; to build a cattle yard at the further end of the estate, and to dig a pond and to construct movable pens for the cattle as a means of manuring the land.
The circle or double hedge that I had made was not only firm and entire, but the stakes which I had cut out of some trees that grew thereabouts were all shot out and grown with long branches, as much as a willow-tree usually shoots the first year after lopping its head.
The dip of Eugene Wrayburn's sculls had become hardly audible in his ears when the bargeman passed him, putting the utmost width that he could between them, and keeping under the hedge.
An instant later I had come round the end of the hedge and my eyes lit upon Mrs.
At last the horses began to go more slowly, as if they were climbing up-hill, and presently there seemed to be no more hedges and no more trees.
Behind him the hills are open, the sun blazes down upon fields so large as to give an unenclosed character to the landscape, the lanes are white, the hedges low and plashed, the atmosphere colourless.