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in this video I want to discuss how you hedge with options now hedging with options entails picking a contract that will offset the downside risk but still allows for up side gains and the two basic types of options we have here are the call option which gives the holder the right but not the obligation to buy at a specified price which is known as the strike or exercise price and this is a contract that youll pay a price which we refer to as a premium for that allows you this privilege of being able to buy but not being required to buy a put option gives the holder the right but not the obligation to sell at the exercise or strike price so lets see what we have here this is the payoff profile for buying a call option now suppose you buy an option that has an exercise price of E and a premium here of this distance so lets just say this is $2.00 and say the exercise price is 50 as long as the price is below $50 youre not going to use this because this gives you the right to buy why
