Hedge
A position taken to offset potential losses from another position.
Explanation
Hedging reduces risk at the cost of reducing potential return. Common options hedges include buying protective puts against long stock, buying calls against short stock, and using spreads to limit exposure. Delta hedging adjusts the number of shares to maintain a delta-neutral position.
Example
You own 500 shares of AAPL and buy 5 put contracts at the 140 strike to protect against a decline below $140.