Someone turned 80k into like 1.2 million betting on Tesla calls or something and hedged with a Kamala win bet it was like 50k tesla/30k Kamala and they turned it into 1.2 million via Tesla somehow
Is it like
- bet 1/2 on unlikely thing
- bet 1/2 on likely thing
- rely on gains on either side averaging out to at least ++
So how does hedging prevail at the instititional level it does or it seems like it does as a viable tool in the investing toolkit? Does it consequently hard require insider info and basically its just investing uncertainty theatre?
In the example you give in the OP, it’s relying on the guess that it would be unlikely that Kamala wins and Tesla goes up OR that Kamala loses and Tesla goes down. Those were still possible outcomes though.
Hedging is done in many different ways. One of the easiest, that requires zero insight is a future hedge.
Say I hold 1000 shares worth 5 bucks each in company Bob. If the price goes up, that’s great, but I’ll need to replace my car in three years, and I’ll need at least 3000 bucks for that.
So, I’m going to spend some money now on buying an option in 2 years 11 months to sell 1000 shares for 3 bucks per share. That way, if Bob company completely collapses, I’ll always have at minimum 3000 bucks.
Of course, those options cost money to buy, so I’ll have to pay to reduce my risk, but I don’t need any real insight into the market to use this kind of hedge.