Today, in birthday party the highlights was Food, College days and Finance.
Few things which I learned today and most simple was simple conversations was about Hedging.
For example you buy a share of a company A for $100. If the shares goes up and you meet your exit criteria of 20%, you sale it and your net net profit is 20% minus trading cost and tax you will pay on 20%.
Now, if the shares goes down 20%. The new price is $80. You buy one more share.
No of shares = 2
Total cost = 180 and 90 per share.
If the shares goes down – will come to that example.
If the shares goes up to 97 and then now you sale and you make a profit of 7 dollars each.
This is what is an example of hedging.