Hedge

An investment made to offset the risk of adverse price movements in another asset.

Hedging reduces exposure to risk by taking an offsetting position. A farmer might sell wheat futures to lock in a price before harvest. An investor holding a stock portfolio might buy put options as downside protection. Perfect hedges eliminate all risk but also cap upside; most hedges are partial.

To hedge his stock portfolio before the election, he bought put options as insurance against a crash.