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dynamic hedging Finance Definition

A portfolio insurance technique that creates an option-like return by increasing or reducing the position in the underlying security or futures, options, or forward contract. The intent is to simulate the delta change in the value of an option position. One example of dynamic hedging is increasing or decreasing a short stock index futures position (selling stock index futures that you don’t own) to create a synthetic put on a portfolio, This will create a return that is similar to portfolio insurance.