Hedgelet

AAA

DEFINITION of 'Hedgelet'

A simplified derivative instrument that allows investors to hedge or speculate on economic events such as housing prices, commodity prices, interest rates, currencies and economic indicators.

The price for a hedgelet contract is based on the prevailing market price determined by participants in the market. Every contract has the same defined payout scheme: $10 for a correct contract and $0 for an incorrect one. Each hedgelet contract is set so that investors must make a decision on whether an economic event will occur or not occur.

INVESTOPEDIA EXPLAINS 'Hedgelet'

For example, on a "Crude Oil > $64" contract an investor can either choose Yes (oil will be more than $64 at expiration) or No (oil will be less than $64 at expiration). If the investor purchases one Yes "Crude Oil > $64" contract for $2, and crude oil ends at $80 when the contract expires, the investor will receive $10 - an $8 profit. However, if the price of crude oil ends at less than $64, the contract will be worthless and the investor will lose the initial $2 investment.

RELATED TERMS
  1. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Hedge Fund Manager

    The individual who oversees and makes decisions about the investments ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  4. Hedge Ratio

    1. A ratio comparing the value of a position protected via a ...
  5. Derivative

    A security whose price is dependent upon or derived from one ...
  6. Hedge

    Making an investment to reduce the risk of adverse price movements ...
RELATED FAQS
  1. Why should I consider buying an option if it's out-of-the-money?

    One situation when a trader may want to buy an out-of-the-money option is to hedge a stock position. A trader may want to ... Read Full Answer >>
  2. How do traders use out-of-the-money options to hedge?

    Traders can utilize out-of-the-money options to hedge an existing market position by either buying or selling options. A ... Read Full Answer >>
  3. What are some examples of smart beta ETFs that use passive and active management?

    There are a number of smart beta exchange-traded funds (ETFs) that use passive and active management, including the WisdomTree ... Read Full Answer >>
  4. How does implied volatility impact the pricing of options?

    Implied volatility is an important aspect of the time value premium of an option. As implied volatility increases, call and ... Read Full Answer >>
  5. Which federal regulatory agencies approved and are now responsible for enforcing ...

    Five federal regulatory agencies approved and are jointly responsible for enforcing the Volcker rule. These agencies include ... Read Full Answer >>
  6. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>
Related Articles
  1. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  2. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  3. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  4. Investing

    Prospering In The Next Bear Market: Here's How

    Prepare to survive, and even prosper, in the impending bear market, by considering and putting into action the following four strategies.
  5. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  6. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.
  7. Investing Basics

    What is an Asset-Backed Security?

    An asset-backed security (ABS) is a debt security collateralized by a pool of assets.
  8. Taxes

    What is an Ad Valorem Tax?

    An ad valorem tax is a levy placed on real or personal property based on the assessed value of that property.
  9. Professionals

    Characteristics Of Successful Traders

    Successful traders share psychological characteristics that augment their personal and financial power.
  10. Professionals

    Top ETFs, Mutual Funds for Investing in Water

    The nation's water supply is declining as demand is increasing. This presents an investment opportunity, just mind your liquidity.

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!