Secured Loans
A portfolio consisting of the long position in the stock and the long position in the
put option, so as to be riskless and produce a return that equals the risk-free
interest rate.
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 ratio (delta)
The ratio of volatility of the portfolio to be hedged and the return of the volatility of
the hedging instrument. For convertibles, percentage of a convertible bond
representing the number of underlying common shares sold against the shares
into which bonds are convertible. If a preferred is convertible into 2.0 common
shares, a 75% hedge ratio would be short (long) 1500 common for every 1000
preferred long (short). For options, ratio between the change in an options
theoretical value and the change in price of the underlying stock at a given point
in time. See: Delta
Hedgie
Slang for a hedge fund.
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.
Hedging demands
Demands for securities to hedge particular sources of consumption risk, beyond
the usual mean-variance diversification motivation.
Held at the opening
Used for listed equity securities. Not open for trading due to specialist or
regulators disallowing trading to occur until imbalances dissipate or news is
allowed to disseminate.
