Hedging Transaction

You already own a ton of tech stocks. But you've seen one too many sci-fi movies where the aliens knock out Earth's power grids and, well, without electricity, high-tech is...a hammer.

So you want to own stock in Black & Decker. You know...just in case.

The transaction in buying BND (different kind) is essentially a hedging transaction, because you're hedging your exposure to tech stocks.

The point? Hedges don't always need to be derivative securities. You could have also bought a LEAP: a series of put options to be able to sell shares of whatever tech stocks, at lower and lower prices or over longer and longer periods of time.

So yeah, that's a hedging transaction. Almost as important a concept to grok pre-alien invasion as "rectal probe."