Short Hedging and Long Hedging: Rapid Fire

What this video covers

• What an anticipatory hedge is, and why protecting a crop still in the field or a purchase not yet made counts as legitimate hedging rather than speculation
• How the futures leg stays identical between ordinary and anticipatory hedges, and that only the timing of the cash side changes
• Why a producer fearing a price decline sells futures (short hedge) and why a buyer or processor fearing a price rise buys futures (long hedge)
• The basis formula: basis equals cash (spot) price minus futures price, and how the sign can be positive or negative
• What strengthening and weakening mean for the basis, including the trap that a rising negative basis (negative 35 to negative 30) strengthens rather than weakens
• Who is long the basis and who is short it, and why the basis label is always the opposite of the futures leg
• Which gotchas exam writers use: that owning no physical today does not make an anticipatory hedger a long hedger, and that matching basis label to the same-sounding futures position lands on the wrong answer