what is natural hedging 
natural hedging is a risk management strategy to mitigate the potential negative effects of price or interest rate changes and other financial risks it involves structuring the portfolio so that gains in one asset can offset losses in another without using derivatives the bottom lineoptions contracts are derivatives that grant the holder the right but not the obligation to buy or sell an underlying asset at a preset price before a specific expiration date these contracts come primarily in two forms call options which provide the right to buy and put options which offer the right to sell the underlying asset by paying a premium you can leverage options to hedge against potential losses speculate on price moves or generate income their flexibility and risk management capabilities make them a valuable tool in financial markets but they also require a thorough understanding of their complex mechanics and inherent risks to be used effectively 