What does De-hedge mean?
De-hedging is a conscious decision to invest or trade without hedging. Hedging is a strategy to protect the possible loss of adverse price movements in a security or commodity. Some financially sound investors or companies that are capable and willing to absorb the unforeseen loss because of adverse price movements may opt out of hedging.
Futures Knowledge Explains De-hedge
Hedging involves taking an offsetting position in a related security or commodity, such as an option or a short or long position. A Company, which produces or uses any commodity, can buy or sell derivatives to hedge against fluctuations in the movement of underlying commodity prices. However hedging has a cost and may reduce the rate of return.
De-hedging is closing out hedged positions, which were earlier taken to limit risk of adverse price movements of underlying assets. De-hedging is similar to not renewing insurance policy to protect assets and prefer self- insurance.