Buying an underlying asset and hedging it with futures or options is advisable when you are working with investment portfolios for a long time. To exclude drawdown of the accumulated positions collected according to your business plan, you use the sale of futures or the purchase of PUT options at times when the price of the underlying asset gives a signal to drawdown.
What is working with an investment portfolio?
Let’s say a large amount of money is transferred to your trust management. Suppose you divide the sum into three parts:
– part for buying shares;
– part for the purchase of FLB;
– the part used for the purposes of supporting the first two capitals.
You buy stocks, buy bonds FLB.
FLB give a guaranteed income on coupons.
Some of the stocks are rising in price, some are starting to fall, spoiling the financial achievements of your portfolio. To improve the picture, you start selling futures or buying PUT options on falling stocks. After the start of growth, you close the positions used for hedging.