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fut-hedging - Futures Hedging Futures Hedging Hedging is a...

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Futures Hedging
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Futures Hedging Hedging : is a transaction designed to  reduce or in some cases eliminate risk. Why hedge? 1. It is part of doing business. Underwriters of  derivative securities are not in the business of  taking directional bets.    2. Modify return/risk profiles suitable to  preferences.    3. Potential liability .
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Futures Hedging An operational definition of futures  hedging  is:  “establishing a position in futures opposite  to the one held in the cash market”
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Futures Hedging An individual who holds the commodity  and is concerned about a decrease in its  price might consider hedging this position.  How?
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Example Suppose you are an oil company that has  100,000 barrels of inventory of crude oil  on hand.  The cash price for crude oil today January  31, is $30/barrel.
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