how does hedging reduce net exposure 
a hedge is an offsetting position that reduces one s market risk suppose you own 1 000 shares of the spy s p 500 etf from 425 you can buy 400 strike puts expiring in 6 months as a hedge making the net exposure to the downside just a 25 loss during that period if the spy falls below 400 each dollar lost in the etf shares would be offset by gains in the put options investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal 