What is Options Trading? - Strategies & Examples

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Ask UXmatters is here to answer your questions about user experience matters. My company is developing software that, among other things, manages large amounts of member information.

This is enterprise-level software, so we assume there will be some training involved. However, my initial usability testing has found that the concept of views is escaping most people, and I think it often boils down to the term itself.

Even if I show users what the software does—and they pretty much always like it when they see it—they still often cannot get over the initial hurdle of the naming convention. When we say Click here to view your viewswe see eyes glazing over and drool forming at the corners of the mouths of even the most competent users. I have two questions for the Ask UXmatters experts:. Because it all depends on the market space. I have 10 years of experience designing enterprise software and hardware, and the one constant is that there is no constant.

The rule in enterprise systems is that vocabularies should be contextual. What are the views? That said, though the verb view predates the noun, view has been in use as a noun for over years, and both forms of the word are common in user interfaces. Commands on the View menu let users change the presentation of the data, without altering the data itself. The View menu commonly contains commands that comprise both nouns and verbs.

In other circumstances, based on the specific design approach, users may frame the discussion in terms of results. In yet other designs, the actual widgets inside the pane are the thing users want to use—for example, that table or that diagram. David Malouf offers this opinion: What users call them is already embedded in their standard business processes, and they just want that word.

Of course, what we should call each individual view is another matter, and on that point, I agree with Dave. We should use the terms users are already using for them.

David Malouf makes an excellent point: These buttons provide visual cues to prepare users for what each represents—a text-based list, a list of cover art visuals, and their unique cover flow feature. There is no need to name each of these views. A user can simply choose each view and decide whether it is useful or fun. The interaction should be self-explanatory. The use of verbs as nouns is less of an issue than what I would call expectation versus experience.

The question is How can you use naming to meet user expectations? If you want users to perform an action, you should use words that let them infer that action—for example, edit, view, print, send, or buy now. We tested a user interface in which users could rename and add columns in a grid and save different views. The button label for this action was simply Columns.

Users often remained unaware of this feature until we added the key action word Edit. Another common mistake designers make is to use branding in lieu of simple descriptors—forcing users to learn the meaning of each new word. A different starting place might be to visit several of your target users, show them Outlook, SQL Builder, or other applications with which they are familiar and which have the kinds of artifacts you are trying to emulate—views in this case—and listen to what they call these elements.

As part of your inquiry, you might have users do whatever tasks require them to interact with, create, or manage these elements and hear the language they use when discussing them. This is a very simple method of eliciting the language your population is already using to describe these things.

If you want the best way to generate an understandable, effective term, you should—you guessed it—practice user-centered design on the problem. Then round up four to six more people, describe or show each of them the functionality, and have them choose the most appropriate term from the six to twelve words the first group of users generated.

If users seem to be split between two or three words, you could either choose one word from that set or rerun the second experiment, using the reduced set of words and another four to six people. Pabini offers this advice: Do a competitive analysis to determine what terms your competitors use in their user interfaces. Follow any terminology guidelines your organization has already established. To ensure your users will understand the terms you choose for your user interfaces, employ user-centered design methods to find out what terms your users typically use in describing their work.

One excellent way of doing this is to do an open card sort. For information about doing card sorts, read these excellent articles:. David Malouf also recommends a user-centered design approach: The vocabulary is there. A short-cut method is to do an open card sort, where you ask several users to sort through the content catalog and give you the answer. Many terminology guidelines have now been in use for decades and were established through extensive usability testing.

Here are some guidelines you should follow:. Whitney agrees with our reader: But you might use this to your advantage. Try running a few usability test sessions in which you include some introductory training material that describes the views concept and how it is used in your software, before asking participants to complete some meaningful tasks. Then, you can ask participants to help you come up with a better label—one that makes sense in the context of your software instead of naming a generalized concept.

After all, if you can figure out how to explain views effectively, you can then put that knowledge to work in the software itself. We are looking to update our UX team to align with advanced needs, and I am having trouble finding an organizational view of UX roles.

I am not sure where UX architects, art directors, information designers, visual designers, user researchers, usability testers, creative managers, interactive designers, and other UX roles fit into the big picture. Do you have any examples of organizational layouts? By avoiding being underneath Engineering or Product Management, UX becomes more strategic, but there can also be some challenges with cross-departmental processes. This can make it more difficult for UX to successfully represent the interests of users when conflicts arise on product teams.

In my article, I described some of the cross-departmental challenges to which Russ alluded and how to overcome them. Set up channels of communication and interaction with your user base and remove as many layers of intermediaries as possible.

The designers work more closely with the software engineers on the implementation of a project. Figure 2 illustrates the emphasis of each role over the course of implementation. In the central organization, you would find a more agency-style organizational structure, with a director overseeing creative resources shopped out on a project basis. Paul has put together UX teams at several mid- to large-sized companies.

By service-oriented, I mean, first decide what services you are providing your organization, then build around that. Our bread-and-butter work, however, was feature-level interaction design, usability assessment, and visual design. These needs drove us toward this organizational layout:. This group successfully moved from waterfall to iterative to an agile, or scrum, development process over the course of three years, which taught me that the basic structure seemed to be valid no matter the development process.

Your mileage may vary, and much of the success of a UX team hinges on having a high-level champion—or ideally more than one—in the business. To help you understand how you should structure your UX team, Daniel poses the following questions:.

Russell describes his team: Workflow, interaction design, prototyping, and information architecture fall under interaction design. Graphic design is, of course, visual design. Information design involves both the interaction design and visual design teams.

UI engineering is a new initiative. We are building out some of the designs instead of just delivering specifications and prototypes. And usability is responsible for testing, walkthroughs, and proactively suggesting improvements.

What is critical is that all of the teams work very closely together and support each other. Look at your current staff and see whether you have any skills gaps, and whether those can best be addressed through training or recruitment. You will also want to ensure you have adequate overlap in core skills. Plan for illness, holidays, and over-commitment. Work through a variety of options and see what will deliver best for you. Retrieved April 29, NoiseApril 24, Szuc, Daniel, Paul J. Sherman, and John S.

It just seems like an unnecessary step. You may find repetition in my reply. Six helps companies design easier-to-use products within their financial, time, and technical constraints. The proceedings of conferences on Graph Drawing, Information Visualization, and Algorithm Engineering and Experiments have also included the results of her research. Janet is the Managing Editor of UXmatters. We discuss two topics in this column: I have two questions for the Ask UXmatters experts: What are your experience and wisdom on the use of verbs as nouns in naming software functionality?

Do you have any other brilliant names for views? In combination with the menu title Viewthe following four commands comprise clauses, in which View is the verb. All of these clauses have the same implied object—the data in the active window. The rest of the commands on the View menu show or hide certain features of the user interface, which is another common use of the View menu.

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A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. In simple language, a hedge is a risk management technique used to reduce any substantial losses or gains suffered by an individual or an organization. A hedge can be constructed from many types of financial instruments, including stocks , exchange-traded funds , insurance , forward contracts , swaps , options , gambles, [1] many types of over-the-counter and derivative products, and futures contracts.

Public futures markets were established in the 19th century [2] to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy , precious metals , foreign currency , and interest rate fluctuations.

Hedging is the practice of taking a position in one market to offset and balance against the risk adopted by assuming a position in a contrary or opposing market or investment. The word hedge is from Old English hecg , originally any fence, living or artificial.

The use of the word as a verb in the sense of "dodge, evade" is first recorded in the s; that of insure oneself against loss, as in a bet, is from the s.

A typical hedger might be a commercial farmer. The market values of wheat and other crops fluctuate constantly as supply and demand for them vary, with occasional large moves in either direction. Based on current prices and forecast levels at harvest time, the farmer might decide that planting wheat is a good idea one season, but the price of wheat might change over time. Once the farmer plants wheat, he is committed to it for an entire growing season. If the actual price of wheat rises greatly between planting and harvest, the farmer stands to make a lot of unexpected money, but if the actual price drops by harvest time, he is going to lose the invested money.

Due to the uncertainty of future supply and demand fluctuations, and the price risk imposed on the farmer, said farmer may use different financial transactions to reduce, or hedge, their risk. One such transaction is the use of forward contracts. Forward contracts are mutual agreements to deliver a certain amount of a commodity at a certain date for a specified price and each contract is unique to the buyer and seller. For this example, the farmer can sell a number of forward contracts equivalent to the amount of wheat he expects to harvest and essentially lock in the current price of wheat.

Once the forward contracts expire, the farmer will harvest the wheat and deliver it to the buyer at the price agreed to in the forward contract. Therefore, the farmer has reduced his risks to fluctuations in the market of wheat because he has already guaranteed a certain number of bushels for a certain price.

However, there are still many risks associated with this type of hedge. For example, if the farmer has a low yield year and he harvests less than the amount specified in the forward contracts, he must purchase the bushels elsewhere in order to fill the contract. This becomes even more of a problem when the lower yields affect the entire wheat industry and the price of wheat increases due to supply and demand pressures.

Also, while the farmer hedged all of the risks of a price decrease away by locking in the price with a forward contract, he also gives up the right to the benefits of a price increase. Another risk associated with the forward contract is the risk of default or renegotiation. The forward contract locks in a certain amount and price at a certain future date. Because of that, there is always the possibility that the buyer will not pay the amount required at the end of the contract or that the buyer will try to renegotiate the contract before it expires.

Future contracts are another way our farmer can hedge his risk without a few of the risks that forward contracts have. Future contracts are similar to forward contracts except they are more standardized i. These contracts trade on exchanges and are guaranteed through clearinghouses. Clearinghouses ensure that every contract is honored and they take the opposite side of every contract.

Future contracts typically are more liquid than forward contracts and move with the market. Because of this, the farmer can minimize the risk he faces in the future through the selling of future contracts. Future contracts also differ from forward contracts in that delivery never happens. The exchanges and clearinghouses allow the buyer or seller to leave the contract early and cash out. So tying back into the farmer selling his wheat at a future date, he will sell short futures contracts for the amount that he predicts to harvest to protect against a price decrease.

The current spot price of wheat and the price of the futures contracts for wheat converge as time gets closer to the delivery date, so in order to make money on the hedge, the farmer must close out his position earlier than then. On the chance that prices decrease in the future, the farmer will make a profit on his short position in the futures market which offsets any decrease in revenues from the spot market for wheat.

On the other hand, if prices increase, the farmer will generate a loss on the futures market which is offset by an increase in revenues on the spot market for wheat. Instead of agreeing to sell his wheat to one person on a set date, the farmer will just buy and sell futures on an exchange and then sell his wheat wherever he wants once he harvests it. A stock trader believes that the stock price of Company A will rise over the next month, due to the company's new and efficient method of producing widgets.

He wants to buy Company A shares to profit from their expected price increase, as he believes that shares are currently underpriced. But Company A is part of a highly volatile widget industry.

So there is a risk of a future event that affects stock prices across the whole industry, including the stock of Company A along with all other companies. Since the trader is interested in the specific company, rather than the entire industry, he wants to hedge out the industry-related risk by short selling an equal value of shares from Company A's direct, yet weaker competitor , Company B.

The first day the trader's portfolio is:. If the trader was able to short sell an asset whose price had a mathematically defined relation with Company A's stock price for example a put option on Company A shares , the trade might be essentially riskless. In this case, the risk would be limited to the put option's premium.

On the second day, a favorable news story about the widgets industry is published and the value of all widgets stock goes up. The trader might regret the hedge on day two, since it reduced the profits on the Company A position. But on the third day, an unfavorable news story is published about the health effects of widgets, and all widgets stocks crash: Nevertheless, since Company A is the better company, it suffers less than Company B:.

The introduction of stock market index futures has provided a second means of hedging risk on a single stock by selling short the market, as opposed to another single or selection of stocks. Futures are generally highly fungible and cover a wide variety of potential investments, which makes them easier to use than trying to find another stock which somehow represents the opposite of a selected investment.

Employee stock options ESOs are securities issued by the company mainly to its own executives and employees. These securities are more volatile than stocks. An efficient way to lower the ESO risk is to sell exchange traded calls and, to a lesser degree, [ clarification needed ] to buy puts.

Companies discourage hedging the ESOs but there is no prohibition against it. Airlines use futures contracts and derivatives to hedge their exposure to the price of jet fuel. They know that they must purchase jet fuel for as long as they want to stay in business, and fuel prices are notoriously volatile. By using crude oil futures contracts to hedge their fuel requirements and engaging in similar but more complex derivatives transactions , Southwest Airlines was able to save a large amount of money when buying fuel as compared to rival airlines when fuel prices in the U.

As an emotion regulation strategy, people can bet against a desired outcome. A New England Patriots fan, for example, could bet their opponents to win to reduce the negative emotions felt if the team loses a game. People typically do not bet against desired outcomes that are important to their identity, due to negative signal about their identity that making such a gamble entails. Betting against your team or political candidate, for example, may signal to you that you are not as committed to them as you thought you were.

Hedging can be used in many different ways including foreign exchange trading. The stock example above is a "classic" sort of hedge, known in the industry as a pairs trade due to the trading on a pair of related securities. As investors became more sophisticated, along with the mathematical tools used to calculate values known as models , the types of hedges have increased greatly.

Examples of hedging include: A hedging strategy usually refers to the general risk management policy of a financially and physically trading firm how to minimize their risks. As the term hedging indicates, this risk mitigation is usually done by using financial instruments , but a hedging strategy as used by commodity traders like large energy companies, is usually referring to a business model including both financial and physical deals.

In order to show the difference between these strategies, let us consider the fictional company BlackIsGreen Ltd trading coal by buying this commodity at the wholesale market and selling it to households mostly in winter.

Back-to-back B2B is a strategy where any open position is immediately closed, e. If BlackIsGreen decides to have a B2B-strategy, they would buy the exact amount of coal at the very moment when the household customer comes into their shop and signs the contract. This strategy minimizes many commodity risks , but has the drawback that it has a large volume and liquidity risk , as BlackIsGreen does not know how whether it can find enough coal on the wholesale market to fulfill the need of the households.

Tracker hedging is a pre-purchase approach, where the open position is decreased the closer the maturity date comes. If BlackIsGreen knows that most of the consumers demand coal in winter to heat their house. A strategy driven by a tracker would now mean that BlackIsGreen buys e. The closer the winter comes, the better are the weather forecasts and therefore the estimate, how much coal will be demanded by the households in the coming winter.

A certain hedging corridor around the pre-defined tracker-curve is allowed and fraction of the open positions decreases as the maturity date comes closer. Delta-hedging mitigates the financial risk of an option by hedging against price changes in its underlying.

It is called like that as Delta is the first derivative of the option's value with respect to the underlying instrument 's price. This is performed in practice by buying a derivative with an inverse price movement. It is also a type of market neutral strategy. Only if BlackIsGreen chooses to perform delta-hedging as strategy, actual financial instruments come into play for hedging in the usual, stricter meaning.

Risk reversal means simultaneously buying a call option and selling a put option. This has the effect of simulating being long on a stock or commodity position.

Many hedges do not involve exotic financial instruments or derivatives such as the married put. A natural hedge is an investment that reduces the undesired risk by matching cash flows i. For example, an exporter to the United States faces a risk of changes in the value of the U. Another example is a company that opens a subsidiary in another country and borrows in the foreign currency to finance its operations, even though the foreign interest rate may be more expensive than in its home country: Similarly, an oil producer may expect to receive its revenues in U.

One common means of hedging against risk is the purchase of insurance to protect against financial loss due to accidental property damage or loss, personal injury, or loss of life. There are varying types of financial risk that can be protected against with a hedge. Those types of risks include:. Equity in a portfolio can be hedged by taking an opposite position in futures. To protect your stock picking against systematic market risk , futures are shorted when equity is purchased, or long futures when stock is shorted.

One way to hedge is the market neutral approach. In this approach, an equivalent dollar amount in the stock trade is taken in futures — for example, by buying 10, GBP worth of Vodafone and shorting 10, worth of FTSE futures the index in which Vodafone trades.

Another way to hedge is the beta neutral. Beta is the historical correlation between a stock and an index.