19 July 2022 gotranscript audio test passed

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There are on-important 10 common reasons you might want to consider hedging. One is to reduce your short-term cash flow volatility, another is to maximize return on capital for whatever the investor’s target level of risk is, a lot of big chunks of benefits are achieved.

If you successfully reduce cash flow volatility, the biggest one being that the risk of bankruptcy is reduced, which not only reduces the cost of borrowing but also makes lenders more willing to lend you any money, to begin with.

Furthermore, more accurate earnings and forecasting is possible when hedging a company with more predictable earnings will in general be more or valued by investors. If your company uses hedging to withstand short-term price movements, its management then focuses the energy more fully on the company’s core competencies, doing what they are best at.

Some people don’t like the idea of hedging against price fluctuations, because they feel that in some ways, it’s a lot like gambling. Well, those people are what we in the financial advisor trade called dim bulbs and it’s not true talk. Show gambling increases your risk profile by making a bet on cross pricing. But by hedging you, Mr. or Miss smarty q pants are doing the exact opposite of your efforts to reduce the risk profile of your organization and don’t have some preconceived notion that the odds are somehow in your favor.

By the way, how do you like my use of that word efforting in the previous paragraph, your spell checker might be telling you it’s not a real word. And before today, I would have agreed with that spell checker. However, on my way home from my gym fitness team, I heard a newscaster using it and a story about 9-11.

Now, we’re coming up on the 20th anniversary of that sad day. So I really appreciated that reporter using a bogus word to distract me from the feels I was feeling Anyway when the strike price with options is equal to the current market price of a share.

That option is referred to as an at-the-money option. For example, with Pay Pal share prices are 1500 bucks, and the call or put option is also 1500$. It’s called an at-the-money option. As you probably know, all else being equal, the further the option is in the money more profitable that option will get.

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