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Definition of Short hedge

Short Hedge Image 1

Short hedge

The sale of a futures contract(s) to eliminate or lessen the possible decline in value ownership of
an approximately equal amount of the actual financial instrument or physical commodity.
Related: Long hedge.



Related Terms:

Long hedge

The purchase of a futures contract(s) in anticipation of actual purchases in the cash market. Used
by processors or exporters as protection against an advance in the cash price. Related: hedge, short hedge


Sell hedge

Related: short hedge.


Additional hedge

A protection against borrower fallout risk in the mortgage pipeline.


Covered or hedge option strategies

Strategies that involve a position in an option as well as a position in the
underlying stock, designed so that one position will help offset any unfavorable price movement in the other,
including covered call writing and protective put buying. Related: naked strategies


Delta hedge

A dynamic hedging strategy using options with continuous adjustment of the number of options
used, as a function of the delta of the option.



Hedge

A transaction that reduces the risk of an investment.


Hedge

A securities transaction that reduces or offsets the risk on an existing
investment position.


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Hedge fund

A fund that may employ a variety of techniques to enhance returns, such as both buying and
shorting stocks based on a valuation model.


Hedge inventory

Excess inventories kept on hand as a buffer against contingent
events.


Hedge ratio (delta)

The ratio of volatility of the portfolio to be hedged and the return of the volatility of the
hedging instrument.


Hedged portfolio

A portfolio consisting of the long position in the stock and the short position in the call
option, so as to be riskless and produce a return that equals the risk-free interest rate.


Money market hedge

The use of borrowing and lending transactions in foreign currencies to lock in the
home currency value of a foreign currency transaction.


Perfect hedge

A financial result in which the profit and loss from the underlying asset and the hedge position
are equal.


Selling short

If an investor thinks the price of a stock is going down, the investor could borrow the stock from
a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you
borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares
of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.


Short

One who has sold a contract to establish a market position and who has not yet closed out this position
through an offsetting purchase; the opposite of a long position. Related: Long.


Short bonds

Bonds with short current maturities.


Short Hedge Image 3

Short book

See: unmatched book.


Short interest

This is the total number of shares of a security that investors have borrowed, then sold in the
hope that the security will fall in value. An investor then buys back the shares and pockets the difference as profit.



Short position

Occurs when a person sells stocks he or she does not yet own. Shares must be borrowed,
before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought to close out the
transaction. This technique is used when an investor believes the stock price will go down.


short position

The sale of an investment, particularly by someone who does not yet own it.


Short rate

The annualized one-period interest rate.


Short-run operating activities

Events and decisions concerning the short-term finance of a firm, such as
how much inventory to order and whether to offer cash terms or credit terms to customers.


Short sale

Selling a security that the seller does not own but is committed to repurchasing eventually. It is
used to capitalize on an expected decline in the security's price.


Short sale, short position

The sale of a security or financial instrument not
owned, in anticipation of a price decline and making a profit by purchasing the
instrument later at a lower price, and then delivering the instrument to
complete the sale. See Long position.


Short selling

Establishing a market position by selling a security one does not own in anticipation of the price
of that security falling.


Short squeeze

A situation in which a lack of supply tends to force prices upward.


Short straddle

A straddle in which one put and one call are sold.


Short Hedge Image 4

Short-term financial plan

A financial plan that covers the coming fiscal year.



Short-term investment services

Services that assist firms in making short-term investments.


Short-term solvency ratios

Ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.


Short-term tax exempts

short-term securities issued by states, municipalities, local housing agencies, and
urban renewal agencies.


Shortage cost

Costs that fall with increases in the level of investment in current assets.


shortage costs

Costs incurred from shortages in current assets.


Shortfall risk

The risk of falling short of any investment target.


Hedging

A strategy designed to reduce investment risk using call options, put options, short selling, or futures
contracts. A hedge can help lock in existing profits. Its purpose is to reduce the volatility of a portfolio, by
reducing the risk of loss.


Naked option strategies

An unhedged strategy making exclusive use of one of the following: Long call
strategy (buying call options ), short call strategy (selling or writing call options), Long put strategy (buying
put options ), and short put strategy (selling or writing put options). By themselves, these positions are called
naked strategies because they do not involve an offsetting or risk-reducing position in another option or the
underlying security.
Related: covered option strategies.


Unmatched book

If the average maturity of a bank's liabilities is less than that of its assets, it is said to be
running an unmatched book. The term is commonly used with the Euromarket. Term also refers to the
condition when a firm enters into OTC derivatives contracts and chooses to hedge that risk by not making
trades in the opposite direction to another financial intermediary. In this case, the firm with an unmatched
book hedges its net market risk with futures and options, usually.
Related expressions: open book and short book.



 

 

 

 

 

 

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