Selling Hedge

You own a large warehouse full of pork bellies. You plan to sell them in the near future for a sweet price. But...you start to get worried. There's word that scientists at CalTech have started growing synthetic pork bellies in a lab. They might perfect the process in the near future, and the bottom will drop out of the market.

You need a way to protect yourself against declining prices. Time for a selling hedge.

This process involves selling futures contracts (or options contracts) in order to hedge against a potential drop in the price of an underlying security or commodity (like your pork bellies). The goal is to provide a safety net...to protect yourself against the downside.