Part 2 Intraday Master Class

Hedging and Risk Management with Options

One of the main uses of options is hedging, or protecting against adverse price movements. For example, a portfolio manager might buy put options on stocks to guard against potential losses during market declines. This acts like insurance—limiting downside while keeping upside potential. Options can also hedge currency, interest rate, or commodity exposure. However, hedging isn’t free; the premium cost reduces overall returns. Smart traders use hedging selectively, balancing risk and cost. In volatile markets, effective hedging with options can prevent significant capital erosion and ensure stability in long-term investment strategies.