Question

briefly describe its characteristics Symmetric Hedge

Answer 1

Symmetric Hedge is a hedging strategy in which risk and reward payoff is equal. Hedging is a risk mitigating technique. In this situation, risk can either result in gain or loss. This is just opposite to asymmetric Hedge in which loss or gain can be unlimited and extreme.

Example: Collar strategy is the best example in which an investor who holds stock already, He bought Out of the money Put and Out of the money Call is sold. In this strategy, Investor has to paid upfront premium in Put option and he receives premium by shorting Call so premium paid is offset by premium received. Out of the money Put option limits the loss in underlying position and lock in a profit. It is a protection position.