The two most widely used financial hedging tools are forward exchange contracts and over the counter options.  When dealing with booked transaction exposures, forward contracts are the methods used.  Options on the other hand, are hedging strategies that are extensively used for minimizing risk off balance sheet transactions.  Over the past decade the corporate practice of foreign exchange exposure has become a bit more systematic.   There has been a development in relatively inexpensive computer instruments that assist in financial data, technical currency rate trend analysis, and systems that help identify exposure risk.  The overall strategy of using complex derivative tools such as these is to create alternatives when exposure risk is too high, execute hedging transactions, and manage portfolios in large companies.   Let’s take a closer look at the basic protective measures when dealing with hedging in the options sector. For example, hedging strategies using options involve examining a bond/stock in a way that the underlining changes in the value of one position will offset any unfavorable price (interest rate) movement in another position.  The basic hedging strategy that is most favored in the options market is called a protective put-buying strategy.  If for example you have a bond/stock and your primary interest is to “hedge” against rising interest rates, this would be your initial approach.  When you purchase a put-buy option it limits the possible losses on a portfolio in interest rates go up.  This option contract gives the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.  As the price of an underlying bond/stock depreciates relative to the “strike” price (price you purchased at), a put becomes more valuable.  This is because say for instance the market is offering the same stock in the future for cheaper, you can exercise your option and sell them to the options writer for the price you purchased them for. The use of put options allows for businesses and investors to increase their profits without really owning the underlying stock.  However, it is important to understand that all options have a limited life.  They are defined by a specific expiration date by the futures exchange where is trades.  So, while considering this purchase you must first decide on your objective, duration of time you want to be in the trade, the amount you can allocate to buying an option, and the length of a move you expect from the market.  Most commodities in today’s market accommodate the buyers with different expiration dates and different prices. Bibliography Buying a Put-Option. By: Chuck Kowalskihttp://commodities.about.com/od/futuresoptions/a/buy-put-option.htm Bond Portfolio Management. By: Frank J. Fabozzihttp://books.google.com/books?id=5qj02oqoTFsC&pg=PA630&dq=put-buying+str... Management and Foreign Exchange Risk. By: Laurent L. Jaque. Pg.27http://books.google.com/books?id=83ijWoOWkr0C&pg=PR28&dq=Foundations+of+... The Handbook of Fixed Income Securities. By: Steven V. Mann. Pg.1334http://books.google.com/books?id=2Rk3A0B4epwC&pg=PA1320&dq=hedging+strat...