Hedging Growth Stocks

Discussion in 'Strategy Development' started by CREAM, Jan 24, 2009.

  1. CREAM

    CREAM

    Hello everybody,

    I am a high school student who is getting very interested in the stock market. I just finished reading A Random Walk Down Wall Street and I came across the concept of hedging as an "insurance policy"

    My question is, do these following strategies make sense? (I am only in High school, but I am trying to develop general strategies)

    Assuming that you can find a series of high potential growth companies that are "undiscovered" (both high risk and hard to find, but assuming you can), would it make sense to have a portfolio full of these types of companies and then have them hedged at a very small % of the actual cost of the stock?

    Potential gains are HIGH, and potential loss is covered by a low option fee because the company is relatively undiscovered. (Is this how option pricing is determined? I can't seem to figure out how the pricing model works)


    It seems to me that the only way hedging doesn't benefit you is when a company is very stable and therefore your return is eaten up by option fees.