Re: Greenspan' and Derivatives

["Gary Santos" <evs@xxxxxxxxxxxx>]

Why hedge.. if you think someting is going to go down.. sell it....get out..
Only rationale to "hedge" is that you think you can structure a defacto
positive expected value arbitrage"...
---------------------------------
I would think hedging is still very much desirable to producers of cattle,
wheat, gold, etc. when prices are perceived to be high (costs and margins
are known to the producer) and the physical is still in production and,
hence, can not be sold.



----- Original Message -----
From: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Saturday, March 15, 2003 1:16 PM
Subject: Re: Greenspan' and Derivatives


> Arbitrage is not the same as hedging:
>
> Arbitrage: Simultaneous purchase and sale of two different contracts (or
> a combination of cash and futures) to take advantage of perceived
> mispricing. In a pure arbitrage, mispricing is locked in and a risk-free
> profit made through trades.
>
> Hedge: A sale of futures contracts to offset the ownership or purchase
> of the underlying cash commodity in order to protect it against adverse
> price moves; or, conversely, a purchase of futures contracts to offset
> the sale of the underlying cash commodity, again for protection against
> adverse price moves.
>