Hedge
Categories: Derivatives, Trading
It's a kind of bush. But in this case, um, it's not that.
A hedge in InvestmentLand (the financiest place on Earth), is an offset to an investment designed to mitigate risk or downside, should that investment fail.
That is, an investor might think that Coca-Cola stock has been woefully oversold after its bad quarter. At 37 bucks a share, KO should do relatively well.
But that investor is nervous about the overall market. So the investor goes long KO for a million bucks and shorts the market for the same, to be long-short neutral. The short market (like the S&P 500) is her hedge.