Introduction
Hedging refers to an investment strategy that employs financial instruments with the aim of cushioning oneself from the incurrence of losses on other investments. Hedges can be formulated by using a number of financial instruments; these include: options, swaps, future contracts, derivatives, among others.Hedging strategies are diverse in nature. The spread strategy is commonly applied in the markets. This involves the use of more than one option of a similar class or category on the same underlying stock. There are a number of spreads that could be employed by the company in accordance with the volatility. These include the following:
Bull spread
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