Hedging is a trading strategy to reduce or eliminate the risk of holding one position by taking on another position.
One simple example is to compare it to insurance, which is basically a form of hedging.
You are trying to emphasize about option trading which maybe or may not be similar to insurance; but I like to appreciate you for your cross thinking.One simple example is to compare it to insurance, which is basically a form of hedging.
In the insurance, I will pay premium regardless of I will be happened to make a claim or not. If there will be no situation for me to make a claim then I will be happy because I stayed secured with the thoughts of I could get chances to recover my losses up to 70% to 90% if anything bad happens. Premium is the fee for having faith on recovering losses.
How exactly option trading works here? If market reacts as per my PUT/CALL then I will get profits if not I will lose. If the risked amount is compared to premium how you will compare the situation with insurance on the event of profitable option trading? I am just trying to think your way but I could not.
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