In a most basic hedging operation.

After purchasing a stock, the fund manager also purchases a put option (Put Option) with a certain price and expiration date on the stock.

The utility of a put option is that when the stock price falls below the price specified by the option, the holder of the put option can sell the stock he holds at the price specified by the option, thereby hedging the risk of the stock falling in price.

In another type of hedging operation, the fund manager first selects a certain industry with bullish market conditions, buys several high-quality stocks that are promising in the industry, and at the same time sells several inferior and inferior stocks in the industry at a certain ratio.

The result of such a combination is that if the industry is expected to perform well, high-quality stocks will rise more than other stocks in the same industry, and the income from buying high-quality stocks will be greater than the loss from short-selling low-quality stocks; if the expectations are wrong, stocks in this industry will not rise.

If it falls back, then the stocks of poor companies will fall more than those of high-quality stocks.

Then the profit from short selling must be higher than the loss caused by the decline in buying high-quality stocks.

Because of such operating methods, early hedge funds can be said to be a form of fund management based on conservative investment strategies of risk aversion and value preservation.

It can be seen that the price on the delivery day determines whether the hedge fund is profitable or not.