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Taking profit on a hedge without downside coverage

Agriculture.com Staff 03/20/2006 @ 12:51pm

With this recent sell off in the market, I have good gains in my hedge positions. Is there anything wrong with taking this money and getting out of the position? Not A Hedger To The End.

The first question to ask is what will you do if you are wrong? With the possibility of a long term low coming in this hog cycle, we need to be cautious when covering a hedge position before the pigs are sold. For the cautious hedgers, they can look at using options to maintain a hedge and still gain on a rise in the market.

Buy a put or an insurance contract when you buy back the futures or buy a call against the hedge position. This is the simplest and safest solution. Beyond this, you need to work with your broker when you just take profit on a position without covering the downside. Lenders do not like surprises when they finance a hedge position and you take it off.

With this recent sell off in the market, I have good gains in my hedge positions. Is there anything wrong with taking this money and getting out of the position? Not A Hedger To The End.

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