Hedge

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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 periodicals archive ?
Although the majority of the oil and gas firms did not pay dividends around introduction, out results show that the hedgers have higher dividend payouts than the nonhedgers primarily in the year of introduction and in subsequent years.
To say that because Sherritt knew that some investors would be betting against Sherritt through "short-selling" as part of a hedging strategy, Sherritt therefore has some kind of legal responsibility to protect the interests of those short-selling hedgers is, from my perspective as a businessman, an extraordinary leap.
Since foreign currency hedging firms include interest rate hedgers these results might in part be driven by interest rate hedgers.
First, the acceptance of risk from hedgers commands a legitimate economic return and that return is just as "inherent" as the profit earned by anyone else in the risk-acceptance (i.
com/ ) is a four-year-old innovative futures-options brokerage and risk management technologies company that has developed a comprehensive suite of software business tools and services for commercial traders, hedgers and Introducing Brokers.
The market-clearing condition implies that this was coupled with reductions in futures prices and hedgers' short positions, leading to a reallocation of commodity price risk from financial traders to hedgers during the crisis.
Falling volumes in natural gas, copper, crude could be indicative of lack of value to the hedgers.
ALL THAT JAZZ: Simon Wood and his Honking Hedgers will be providing the gala music
Hedgers and ditchers were valued in the society in which I grew up (West Wales).
At some point, hedgers must honour their commitment to cover losses.
According to Furui, the more volatile the prices, the more speculators and hedgers come to the market.
07 crop '08 crop Cash-only: 50% 0% Hedgers (cash sales): 65% 0% Futures/Options 0% 0%