Hedging Basics — Insurance for Portfolios
7/6/2026
risk-management
options
guide
A hedge is a position that profits when your main position hurts — bought insurance, with a premium cost.
Level by level
Beginner
Simplest hedge: own stocks, buy an index put before an event. Market falls → the put pays; market rises → you lost only the premium.
Intermediate
Common tools: protective puts, collars (sell a call to fund the put), and index shorts against stock baskets. Hedging costs return — it's for protecting, not earning.
Advanced
Beta-weight the hedge (portfolio beta x value divided by index value = contracts) or you're just guessing. Permanent hedging is expensive pessimism; hedge event windows, not forever.
Common mistakes
- Hedging so much that no upside remains
- Forgetting the hedge expires (puts decay too)
Practise & tools
_Educational content only — not financial advice. Historical behaviour never guarantees future results._
Keep learning — free tools