Operation Perfect Hedge
Operation Perfect Hedge is a fancy way of saying that someone is making sure they don't lose money no matter what happens. Let's pretend that you have a toy that you want to sell for $5 but you're worried that the price might drop before you sell it. You don't want to lose any money, so you decide to do an Operation Perfect Hedge!
First, you find someone who will buy the toy for $5 no matter what. That means that you're guaranteed to make $5 no matter what the price does.
Next, you also buy something called a put option for $1 that lets you sell the toy for $4 if the price drops. That way, if the price does drop before you sell the toy, you can still make your $5 by selling the toy for $4 and then getting $1 from the put option.
So even if the price drops, you're still making $5 no matter what. That's Operation Perfect Hedge – and it's really useful for grown-ups who are playing with lots of money in the stock market.
First, you find someone who will buy the toy for $5 no matter what. That means that you're guaranteed to make $5 no matter what the price does.
Next, you also buy something called a put option for $1 that lets you sell the toy for $4 if the price drops. That way, if the price does drop before you sell the toy, you can still make your $5 by selling the toy for $4 and then getting $1 from the put option.
So even if the price drops, you're still making $5 no matter what. That's Operation Perfect Hedge – and it's really useful for grown-ups who are playing with lots of money in the stock market.