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Option contracts are useful tool for hedging.
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Options contracts are great tools for hedging. When you take a position in Option to offset or minimize your risks in the cash market it is called hedging. For example, say you hold 10,000 shares of Infosys and want to hold it for a long term. However, in short term, you see the price of Infosys going down. Now to protect the value of your shares, you take an equal but opposite position in Options market so that any loss in value of shares is negated by profit in Options. This is called hedging in Options.
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