Hi, I am an investing noob, so excuse me if I seem to ask silly questions.

Was talking to an investment banking friend of mine who was talking about equity swaps and hedging.

He told me that ideally, an equity swap (as well as other derivatives) could be used to achieve a delta zero position.

So a gain in one position you held in a certain stock would be off set by a loss in another position held in swap (or other derivative).

I am probably simplifying this a lot.

Anyways, about hedging. I don't get it. If you really achieve delta zero, what is the rate of return? The point of investing is to achieve a return on investment, and if delta zero is achieved, isn't the rate of return zero??

How can that be an ideal that banks or investors would want to achieve? The target is to achieve a zero rate of return?

Some companies Hedge in order to protect themselves against different kind of risk, such as price movements, credit risk, etc... So they are not trying to profit but to not make any losses....

Although, investors can boost return and reduce risk at the same time.

Im am at university and im currently studying that topic.

" Ideally, Theoretically, Academically," are all recipes for financial catastrophe in the stock market. Delta Zero positions are an academics wet dream and a professional traders Illusive Big Foot (It doesn't exists.)

These are conversations usually by individuals being paid a "salary" from an institution, rather than earning their living actually trading - big difference as any trader will tell you.

Hedging is an "attempt" to offset losses, it's not scientific but it can be based on historical models that give statistical advantages to hedging different positions - but it is not an exact science.

In trading as with investing there is One Outcome: First and foremost, protect your assets. Second, exponentially grow those assets when, and only when you have identified a high probability trade.

Hope that Helps

Kevin Teeple

Apologies Kevin - looks like your post accidentally got caught by the anti-spam filter. Now approved.

I was wondering what happened? I was getting ready to call Mulder and Scully and report it as an X-file - lol

Thanks!

KT