Hedging Explained - The Insurance of Investing
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- เผยแพร่เมื่อ 24 มิ.ย. 2024
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During times of market turmoil, many investors may turn to hedging to protect themselves from downside, but while this "insurance" can help prevent losses, it comes at a cost. We discuss the concept and more in today's video.
DISCLAIMER:
This channel is for education purposes only and is not affiliated with any financial institution. Richard Coffin is not registered to provide investment advice and as such does not provide recommendations on The Plain Bagel - those looking for investment advice should seek out a registered professional. Richard is not responsible for investment actions taken by viewers.
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Hi Richard, could you explore more on derivatives? If haven't already. Thanks!
Hi Richard, requesting future episodes to explore the following:
* Sustainable Investing; is or when can it just greenwashing, a fad, hype?
* What might make a company choose to list in one stock exchange over the other? What happens when a company becomes unlisted?
* What happens for investors (especially individuals) who have bought stocks in companies that run aground (E.g. Wirecard)? In such cases of apparent fraud, are there recourses available?
* Thoughts or insights on managing growing finances as a freelancer/TH-cam creator. Perhaps some stuff not often mentioned or paid enough attention to
Thanks for the videos you’ve made! I discovered your channel a couple years ago and have learnt a lot. Your work has become an integral part of getting myself acquainted with concepts of personal finance, investing and economics! I still love the funny intro to your passive vs active investing video 😂
I always hedge my bets when I put my money on black by also putting it on red
Flawless
Hmm so is that the same as saying ill hedge my feelings by getting a girlfriend before my wife leaves me 🤔
@@ld8151 nice
That's when you get 0 (green) and lose it all.
YOU FORGOT THE GREEEEN. the green is the key to it all
This channel deserves 1m+ followers
He's almost there
Almost there
Buy 10
Short 10
Commission fee: 10 bucks
:(
Easy rip off lol
S T O N K S
😂 moral of the story....be a broker
TD Ameritrade, commission free trades now.
probably a joke comment, but in case it's not, you're hedging it wrong
You have some of the most sound investing content here on TH-cam. Like a breath of fresh air. Thank you buddy!
Hey Richard, I've started out working with some simple options trading after watching your videos. I really enjoy the way you explain things. Can you cover Implied Volatility in one of your future videos?
Time to go buy a YOLO put option on SPY that's $300 bucks out of the money #hedging
thats actually a good beginner way of doing it...
I mean... it would be a very cheap option to buy.
This is by far the best video I've seen on this subject. Thanks for making it!
Thought this video was going to show me how to make a fence out of bushes and shrubs :/
Sorry to disappoint ¯\_(ツ)_/¯
Excellent explanations (with visuals!) for contextualizing the material in CFA curriculum. Well done.
Commenting for the youtube algorithm.
I work at TH-cam, I'm now exluding your comments from signal boost.
(j/k)
@Lovecraft generic engagement to boost algorithm even more
so THAT'S what hedging actually means
...then, should I get rid of the 10 metre fence around my piggybank?
I mean if it's already up there's no harm in defending your savings with a literal barrier
Hahah
It means to sit on the fence/hedge. Similar strategies are used in games like geo guesser or medical diagnostics
Great video! I hope, you're staying safe man!
Great video series! I'm learning a lot. Wonderful explanations and examples. 😊
My favourite hedge against stocks in gold, which is actually outperforming stocks by quite a bit this year 👌🙂
lol there is only one real hedge and that is dollar. stocks, commodities etc are all positively correlated
Technically there is no hedge in gold because gold does not produce anything else for you. It's psychological that everyone flocks to gold during a crisis and their buying makes it go up in price
Hold is historically one of the worst investments you can make
Thank you, your explanations have been very useful as student looking to go into finance
Metal Gear Solid fan I see. You sir have earned my respect lol
Hahaha *slow nod"
Good insight and well explained. Thanks man and keep it up.
Excellent video, Richard!
Great content here! I wouldn't be surprised if you hit 500k subs before the end of the year! Good stuff!
Another fantastic educational video. You kick ass.
Thanks! Very helpful overview.
One of the best content on hedging that is easy accessible. I should know as I have tried to find out as much as I can on the subject. Most other articles give the impression that there is such a thing as a perfect hedge which there isn't.
For people that are still struggling to wrap their heads around this topic, pay attention to one very important point made in this video - Hedging a position SHOULD BE A TEMPORARY SOLUTION. You might use it at high risk points and close the hedge when your position has started to move up. Otherwise it makes no sense and you will most likely lose or make no profits.
Sir thankyou for helping me out. English is not my first language yet I have to do a presentation about hedging strategy whilst the book is hard to understand. You make it easier to catch up with my topic. Thankyou!
But may I know what is derivatives?
I use 60/40 total market and long term treasuries. When the market dropped in April, I only lost 20% instead of 40% and then rebalanced, allowing me to buy more of my stocks at a discount. I’m up 21% for the past 12 months.
Many people fail to go after what they want in life because they think their best days are behind them. It’s NEVER TOO LATE to create your best ever life. No matter what age you are, no matter how many past failures, it is NEVER TOO LATE.
It’s NEVER TOO LATE because SUCCESS is all in the mind. You can define success however you like, so as long as you have the ability to control your mind you have the ability to create your best ever life.
Most Hedge funds routinely underperform the market, even tailwind funds go down 90 or more percent until possible payoff.
I love ur videos, its plain and simple :)
best video about it. thank you and congrats
Keep posting interesting contents like this!
Great information!
Now I know that that 'insurance' called hedge. Great explanation, Sir!
I believe the best way to hedge beta exposure (broad market risk) is to sell theta to long gamma. You start almost delta neutral and have very little downside protection at first, but the worst the market gets the more protection you get. It lowers your cost of carry but still provides you protection when you really need it. In simple terms, you are more exposed to small drops, but protected against big moves at a very cheap price.
In the last decades, a stock/bond allocation was usefull to protect against stock drops to a certain extent but, historically, it has not always been true and with bonds nearing the 0% level in the west its hard to see if fixed income will provide any protection in the future. I think hedging beta will be a must in the future if someone cant stomach the 40% drops that happen in the indices everytime liquidity gets significantly tighter.
Great video, Plain Bagel
Thanks for the topic you have no idea how greatful i am
I been long tech names that have returned very nice gains these past months. Although I'm not selling just yet, I opened a short on QQQ last week since I believe tech is extended. We shall see. So far so good
Good video. I think it may be helpful to have a list of (possible hedge strategies) of some sort to make it easier for the viewer to see.. keep it up!
You changed the title and made me play the video!
Excellent content
Hey, could you make a in dept video/series on how to value companies/stocks. Like what factors or indications to look for and evaluate. Thank you
Would love to see you do a video on fractional investing. How does it work and what are the "hidden" costs/fees? Regardless, great job, and keep it up!
Great videos
Additionnally, there's also Liability Hedging techniques that pension funds utilize to ensure future risk free returns.
You and Ben Felix are hands down the best channels on TH-cam for finance.
And they’re both Canadians! Where are the quality US channels 😭 We’re slackin’.
For individual long-term investors diversification is more important than hedging while achieving similar (though less dramatic) results. Have equities in multiple countries+regions, in a variety of industries, spread between large/med/sm companies. Mix in both growth and value strategies. This won't prevent you from losing money as well as a hedge, but it's also basically free and still effective at limiting large losses outside of global financial crises. If you plan on investing in individual stocks though this requires a lot more research since you'll have to learn about so many different areas.
I'd also like to note that it seems like most hedge funds don't actually do that much hedging. They're mostly just trading heavily in derivatives.
Thanks Mr. Bagel. Always informative and approachable from a novice investor's perspective.
I'd like you to do a video about why gold is hitting records and what will happen to its price, presumably, when a vaccine hits the market. You've done a video on gold in general as a hedge against inflation and also as a hedge against the VIX, but it seems to me that once the worst is over and volatility goes down, then all that's left is inflation, but since every country in the world is pumping money into the system, then the net effect of inflation is essentially zero. Ergo, why buy gold? It feels like irrational exuberance.
Great video. I enjoyed it. Can you do one on convertible bond
its absolutely funny that your using AK fallible youtuber theme music lol. but congratz man i remember when i first started watching your channel. you used to have like 50 k subscriber now 200 k + keep up the good work man. you earned it :)
Thanks a lot! I am watching this for my CPA exams!
Do u study this things in accounts?
Did you pass
Motivation for companies hedging is more so to protect them from the detrimental effect on profitability of significant price (cost) increases rather than capitalizing from gain on price decreases that improves profitability as at the least businesses want certainty in their cost and limit volatility to their topline.
Here because my teacher used this video in class! :D
Would you consider diversification hedging? I consider it the insurance of investing as well.
In the Plan Bagel stock share example, you buy the share at $50 and hedge with the put option at $45 strike price. Why can't you just place a stop loss order at $45? What am I missing?
This is my strategy, any feedback or constructive criticism is welcome:
80% of my portfolio is buy-and-hold in shares of established ETFs i.e. VOO and QQQ. 15% is in call options on more volatile ETFs that give high return i.e. ARKK. 5% is in puts to hedge the calls. If the stock continues to go up, the exponential profits from the calls will be substantial enough to make the cost of the put relatively small and worth it. If the stock drops, the profits from the put will mitigate much of the cost of the premium payed for the call. What happens to the 80% in shares is irrelevant, since I'm not touching that for the next few decades.
Hmmmm....
I like your videos so much I wrote this pointless comment just to say it
Can you recommend some good investing books?
Still kinda confused. Why would you short and long at the same time? Why not just have a smaller long position, wouldn’t that have the same effect
How expensive are, say, puts compared to diversifying your portfolio, which is meant to do something similar?
Bobby Axelrod nods in agreement
I can't figure out if you use a green screen behind you or is it just a white-painted wall.
I hope im not misunderstanding. In a personal taxable account, the benefit of hedging is to reduce risk without selling the underlying asset and triggering capital gains right?
How can anyone dislike this? Sour grapes
The big short made shorters heros...
WSB: oh really....
@@jacob_90s HAHAHAHAHA wsb only hates short sellers who are shorting the stocks that wsb is long on
can you hedge without options, like regular positions?
Maybe Citron should have watched this before shorting GME. Straight to the moon
$AMC🍿🚀🚀🚀🚀🚀
Aged like milk lol
@@MrMattumbo nah my dude bought in at 3.50 a share... ONLY W’s
Who can blame people calling the stock market a casino when one of the tools, derivatives, is literally a bet. Even if it's stems from the need for hedging, it's impossible to have an equalizing hedging demand from both side so the gap in supply for one side will be fulfilled by demand that are not due from the need for hedging.
If there's no rules in place that the need for hedging is needed for a derivative to be created, it's entirely possible for a bet to appear with none of participants using it for the purposing of hedging.
The casino analogy implies three things:
1) Your investments don't have any tangible product or object behind them
2) You are working against the system
3) Choosing investments is nothing more than picking a number
Both are false. When you buy things on the stock market, you are purchasing a piece of a company. The investment isn't like a number on a roulette wheel.
The stock market has been extremely favourable to investors, sporting huge returns. Average returns on the stock market have been around 10%/yr for the past century.
Choosing an investment is different from a guess. You will look at the underlying asset, it's fundamentals, it's competition and it's future prospects. It's the opposite of a random guess like you would make in a casino.
@@zachb1706 You are right, the stock market is not a casino. But I was pointing out the fact that it will be hard to blame people calling the it a casino when there exists tools that are literal bets.
@@zachb1706 The comment is old but I'm just passing by the video right now.
I agree that the stock market isn't a casino, but actually some people pretty much makes it to be.
I know a lot of (day and swing) traders.
They just bet prices will drop or rise based on gut feeling or strategies/charts they don't really understand and that doesn't makes mathematical sense. Some earn money, some lose a lot. I know a guy that lost his apartment. No kidding.
People are betting on the stock market everyday, sometimes they have luck but most of the time they're fuelling the real investors gains. Those sharks or even some bots are just waiting for some newbies to make a mistake.
That's how I see it, though I confess I'm very ignorant and I'm studying finance for other purposes, that's just what I have observed so far from people closed to me calling themselves day traders and believing on easy money. Sometimes it looks just like a pyramid scheme, specially when you put the whole "training/courses industry" in the equation, promising easy gains.
Just like any pyramid scheme, in the end someone will have to pay the bills, and those are the newbie entering the stock markets to bet.
So I totally understand ofi123 comment about options, which can be pretty much a bet as well.
Stock down in value ,short increase in value ,Wht does tht mean?
Can you go over shorting and what a short squeeze looks like?
He has in previous videos. I highly recommend that you watch his video titled ‘Stock Options Explained’ first. Watch it until you truly comprehend it. Then, he has a video titled, ‘How Short Selling Works’. The Short Squeeze is coved one that second video, at about the 7:00 mark.
@@dhess34 tks Dan. Will do
By the way, hedge funds are now available to retail investors through an ETF of hedge funds. It is called: ASI HFRI-I Liquid Alternatives UCITS Fund, is trading on the Irish Stock Exchange and units can be bought for as little as ~$10.
This is the actuarial financial engineering exam in a short clip, minus ornhstein uhlenbeck, ito calculus and black Scholes etc. 😭
AIG has left the chat
2008 GFC reference
I'm very new to stocks. Usually it says "NYSE" next to the ticker. What does it mean when it says "NYS" next to the ticker ?
That means it trades on the New York Stock Exchange. That doesn't matter much to you as the investor - most brokers can buy stocks from multiple exchanges.
@@ThePlainBagel why would they use 2 different abbreviations for the same stock exchange?
@@snotnews I'm not sure, but that's the only thing I can imagine that meaning. Does it show up as NYSE for some and NYS for others? If so could you provide an example of two tickers with each label?
@@ThePlainBagel it only shows up as NYS. The stock is "Pershing Square Tontine Holdings"
All in AMD 80c 7/31 YOLO! I’m gonna hedge my 0 shares in AMD
"A poorly managed hedge can put you in a worse position"
That aged well.
$gme go brrrrrrrr
This feels like the light side of the force, compared to WSB
Suggestion for a future video.
Something a bit Canadian centric.
GST/HST basics.
What is GST/HST.
What is an ITC.
What is the difference between a fully taxable, zero-rated, and exempt supply.
Information for it could be found on the CRA's website. Particularly the GST/HST memorandums or RC4022 general information for GST/HST registrants.
2nd
Silver and gold are my hedge against the CONTINUOUSLY declining dollar 😩
LOL
what's the cost of putting a seat belt tho 🤔
$BAGEL 9/15 55c
Buying a call option is technically a hedge in a really weird way, lol. You hedge downside risk and can only lose your premium, but that premium means that you have to make a lot more to profit.
Why not sell a put ?
@@arpansaha8323 Selling a put is the opposite. If the stock tanks a lot, you lose almost as much as if you were holding the stock (just a little bit less because of the premium). If the stock goes up a lot, you only make the premium and nothing more. The only advantage is that if the stock stays at the same price or goes down a bit, you still make some or all of the premium. But this isn't a hedge against downside risk.
#LifeInSUREty
So, I should contact my ex whenever I see a potentiality of a breakup with my current partner. That's a great hedging!!
GV
So, basically, it's the science of breaking even?
Make The Plain Bagel a mod of wsb
W
Are you a full time TH-camr ? Or part time .
He does this in part time.
In several videos he references his full-time ‘day job’ in Finance.
Jed Clampett and the Beverly Hillbillies never had to worry about hedge funds.
#Squarespacebeyond100
14th
I’ve never heard of hedging currency. Is that similar to forex? My friend was telling me about it but I think he’s in a pyramid scheme lmao
Steven can be done through a number of ways usually through currency futures and or swaps
The Jupiter in retrograde - time to short nasdaq
So can I hedge my 10 K bitcoing investment :)))))
Almost as good as edging
the better option is to invest in dividend stocks to hedge crypto trading this consistently loses less than the crypto market in a bear market and makes more than stocks in a bull market I lose at least 50% less than crypto and I make at least 50% more than the stock market so I get alpha both ways the market could go and if I get margin I can be on both sides of the market instead of only going long that would make me even more money in a bear market instead of just losing less than the market but it increases risk by a lot
😄👀
Make sure your intend stock have options available , Or buy Put Option first and then Buy your stock , just a poor opinion from small trader
Weak hands that got in late are getting shaken out of the market today.
Why?
Alien Hive
Because they’re selling out.
Do you like coffee with your bagels?