Question of the Week

Which of the following would be considered a short hedge?

a) Long the commodity and short the futures
b) Short the commodity and long the futures
c) Long the commodity and long the futures
d) Short the commodity and short the futures


Answer:

The correct answer is a) Long the commodity and short the futures.

A short hedge or selling hedge is when you are long the commodity (cash commodity) and short the futures contract on that commodity. A buying or long hedge would be shorting the commodity and buying the futures.

© 2004 American Investment Training, Inc.