Options Hedging

Core idea

Options hedging uses puts, calls, spreads, or collars to reshape downside, upside, and volatility exposure. The premium and payoff structure make the cost and protection more explicit than a simple linear hedge.

Implementation

Strike, expiry, implied volatility, and path dependency must match the risk horizon being hedged.

Primary risk

Time decay and volatility repricing can make protection expensive even when the directional view is correct.

Frequently asked questions

What is options hedging?

Options hedging uses puts, calls, spreads, or collars to reshape downside, upside, and volatility exposure. The premium and payoff structure make the cost and protection more explicit than a simple linear hedge.

What is the main risk of options hedging?

Time decay and volatility repricing can make protection expensive even when the directional view is correct.