The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha. Welcome back to the daily call. Today, we're going to answer the question, “What is the difference between speculating and hedging?” I often hear the terms, speculating and hedging thrown about in forums and in emails and people assume that both of these things are the same. And while they might perform potentially the same types of trades, the psychology of the investor going into a speculation trade versus a hedge trade could be completely different. For me, speculating is the assumption that you're getting into a trade with huge potential risk reward payoffs. And so, this speculation is built up by the trade that you're getting into in the sense that you’re building an option strategy or a stock strategy or a combined option stock strategy with the purpose of generating positive expected returns. Now, you assume that this is going to happen and that's the part of the speculating. You’re speculating that this is going to happen though you don't know f