Options: Buying options can play the same hedging role as futures, and both can avoid the risk of adverse price changes. However, when the hedging target is partially profitable, although there is a loss in the long position of the option, no matter how much the price of the hedging target changes, the loss of the option is limited to the premium paid by the hedger, but the profit of the hedging target can be continuously expanded with the favorable price changes. So buying options is equivalent to the production and operation of the hedger? Insurance? Instead of just locking in profits or costs.
The cost of hedging with futures is relatively low, but there are also some unfavorable factors. For example, when the spot price is at a high level, the buyer will lock the cost at a high level by hedging the corresponding futures, or the spot price will rise after selling the corresponding futures to avoid the risk of the spot price falling. Futures hedging strategy effectively avoids the risk of adverse changes in target price for hedgers, but at the same time, it also makes hedgers lose the benefits generated by favorable changes in target price. There is a nonlinear relationship between options and spot returns, and a single stock option investor can hedge spot risks while retaining the profits generated by favorable changes in spot prices.
It should be noted that there is no free lunch in the world. Although option contracts can retain the benefits of favorable changes in the base price for hedgers, unlike futures contracts, option contracts are not free. When using futures to hedge the underlying assets, if the hedger is worried about the rising price of the underlying assets, he can choose to buy the corresponding futures to hedge; On the other hand, if you are worried that the price of the underlying asset will fall, you will sell the corresponding futures for hedging. ?