Options can be used as arbitrary, speculation or hedging tools. This paper is dealing with the letter one, the hedging tool. First of all the author wants to explain what hedging contains. Hedging is generally a finance transaction as a safeguard against risks such as exchange rate fluctuations or changes of commodity prices. The person or company who wants to hedge a transaction, also called the Hedger, is doing another transaction which is directly linked to the underlying transaction. One instrument to do this is the so called Option. Options belong to the group of derivatives. An Option gives you the right to buy or to sell the underlying at or before a future date for an agreed price. This price is called the strike price and the future date is called expiration date or maturity. The underlying can be a stock, a bond, a currency or another security such as a future contract and they can be traded at an exchange or over-the counter. Options are a special type of future contracts and that is why they are also called conditional future contracts. If you buy the underlying it is called a Call and if you sell the underlying it is called a Put. It has to be emphasized that the Option gives the owner the right to do something but he doesn`t have to exercise this right. This is basically the biggest difference to Forwards and Futures where you have to perform. That is why the buyer of an Option has to pay a premium to the seller (writer). This value of an option can be determined with several methods such as the Black and Scholes model. Generally you can distinguish two types of Options. On the one hand you have the American Options which can be exercised at any point of time until the expiration date and which are the most traded Options at the exchanges and on the other hand you have the European Options which can be exercised only at maturity. The biggest exchange for Options is the Chicago Board Options Exchange (CBOE). As an example we assume that a company owns 1000 stocks of Microsoft. The current price for one stock is $28 and the investor wants to hedge against a possible decline in the stock price in the next two month. So he could buy ten Puts (1 Put = 100 stocks) at the CBOE with an expiration date in two month and a strike price of $27.50. If the price for one option is $1 each contract would cost $100 and the overall costs would be $1000. So if the price for Microsoft stocks will fall below $27.50 you can exercise the Option and you will get $27500 less the $1000 premium. The revenue would be still $26500. But if the price for the stocks is higher than $27.50 the investor wouldn`t exercise the Option because in this case the value of the equity stake would be higher than $27500 (less the premium still $26500). So summarizing with Options you can not only hedge against unwelcome future chart-developments, you can also profit from advantageous market trends.  REFERENCE1. Hull, J. C. (2005). Options, Futures and Other Derivatives. Mason, Ohio: Prentice Hall.2. Wikipedia (2009). Options. Retrieved May 06, 2009, from http://en.wikipedia.org/wiki/Option_(finance)