Hedging Strategies Using Options and Futures: A Comparative Analysis

Abstract

Hedging is a risk mitigation tactic used to counterbalance potential financial losses in ventures. Options and futures are often employed financial tools for the purpose of hedging.  This study performs a comparative analysis of hedging methods in financial markets, specifically focusing on the use of options and futures. Options offer versatility by allowing for personalized risk profiles through the selection of strike prices and expiration dates, enabling accurate risk control despite the need for prompt decision-making. On the other hand, futures provide standardized contracts that make execution easier and give instant risk reduction, albeit they have less flexibility. Both instruments are essential for safeguarding portfolios against volatility, controlling speculation, and increasing profitability. Gaining a comprehension of these tools enables investors to customize strategies that successfully match their risk tolerance and investment objectives in ever-changing market conditions. On the basis of scope based objectives, empirical analysis has been done theoretically with giving proper examples.