Buying vs. Selling Options as a Hedge

What this video covers

• Why buying an option creates a full hedge through a defined maximum loss, while selling an option creates only a partial hedge through a fixed premium
• How a long stock position is fully hedged by buying a put and partially hedged by selling a call
• How a short stock position is fully hedged by buying a call and partially hedged by selling a put
• Why long bonds facing rising interest rates require buying yield-based calls, the key reversal in yield-based option logic
• Why an importer paying foreign currency buys currency calls, while an exporter receiving foreign currency buys currency puts
• How a $3 covered call premium cushions a $20 stock decline but still leaves a $17 net loss
• How to use exam keywords: best protection, maximum protection, and full hedge point to buying, while income and least expensive hedge point to selling