hedging comes naturally to us
A person commits to his girlfriend to marry her 2 years down the line. He is then free to live life as he wishes ..(as long as his gf doesn't find out)..... forward contract. The girl's father (holder) says to the boy(writer)I will let you marry my daughter if you become the CEO of the company in 2 years, in the mean period you can meet my daughter(premium).... Put option The boy (holder)says I will marry your (writer)daughter only if she becomes Miss world in 2 years, i will pay for all the expenses though(premium)... Call option