Hedge Calculator
Use our free Hedge Calculator to compare investment returns with and without protective puts. Interactive charts help you make smarter risk decisions.
What Is a Hedge Calculator?
A hedge calculator is a financial tool designed to help investors understand how protective strategies—such as using put options—can reduce potential losses in volatile markets. Whether you’re new to investing or a seasoned trader, managing risk is essential, and this calculator provides a visual and interactive way to see how hedging impacts your returns.
Why Use a Hedge Calculator?
Hedging is a way to protect your investment from downside risk. For example, if you own a stock and you’re worried about a potential drop in its price, you might buy a put option. This option gives you the right to sell the stock at a specific price (called the strike price) even if the market price falls lower.
A Protective Put strategy involves:
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Buying the stock
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Buying a put option (paying a premium)
This way, if the stock drops significantly, your losses are limited.
How the Hedge Calculator Works
Our hedge calculator makes this simple:
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Enter the stock’s purchase price
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Input the strike price of the put option
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Add the premium (cost) of the put
The calculator generates a real-time line chart comparing:
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Stock-only investment returns
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Hedged investment returns using a protective put
This allows you to visualize:
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Profit potential if the stock goes up
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Loss protection if the stock drops
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The cost of the hedge (the premium paid)
Example Scenario
Suppose you buy a stock for $100. To protect yourself, you purchase a put option with a strike price of $95, costing you $3 per share. Here’s how the outcomes compare:
| Stock Price at Expiry | Stock Only P/L | With Put Hedge P/L |
|---|---|---|
| $80 | -$20 | -$8 |
| $90 | -$10 | -$3 |
| $100 | $0 | -$3 |
| $110 | $10 | $7 |
As seen, the put reduces downside risk but costs a small premium, slightly capping the upside.
Who Should Use This Calculator?
This calculator is helpful for:
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Retail investors managing personal portfolios
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Options traders
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Financial advisors
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Risk-averse investors planning long-term strategies
Benefits of Hedging
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Reduces Risk: Limits your downside exposure
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Peace of Mind: Helps you stay invested without panic selling
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Flexible Strategy: You can use puts, calls, or other combinations
FAQs
Q: What is a protective put?
A: It’s an options strategy where you buy a put option to hedge against a decline in the stock price.
Q: Does this calculator work for short positions or other options strategies?
A: No, it is currently designed for long stock + put hedge only.
Q: Can I use this on mobile devices?
A: Yes, the calculator is fully responsive and mobile-friendly.
Q: Does this tool give financial advice?
A: No. It is for educational purposes only. Always consult a financial advisor for investment decisions.