Hedging, speculation vs. arbitrage
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Hedging: 
    With a position, we take an opposite option to reduce the risk. 

    Example #1: We have many shares of  IBM's stock. The risk is 
                that the price might go down. To hedge the risk, we might buy a 
                put options. 

    Example #2: Our company would import equivalent from England worth 10 million 
                pound in three months. The current (exchange risk) is that the 
                pound might be appreciated again USD. To hedge the risk, we might enter futures 
                contracts long pound, i.e., the company fixes the exchange rate today. 

    speculation:
        Without a position, we take a position depends on our expectation. 

    Example #1: We expect IBM's stock is going up, we buy 100 shares. 

    Example #2: Our analysts expect British pound is going depreciate, we 
                enter a contract to sell it with a fixed rate in 3 months. 

     arbitrage:
               Buy low and sell high simultaneously to earn a profit. 

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various trading strategies involving options
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 Example 1: If we expect stock A will arise, we could buy its call options. 
 Example 2: If we expect stock A will arise, we could sell its put options. 
 Example 3: we own stock A. To protect ourselves, we could buy its put options. 

 Example 4: we expect company B is going through its restructuring process. 
            Because of this, stock A might go up is the process is successfully,
            or going down if the restructure is a failure. Thus, we could buy one call 
            and one put at the same time. This is called a straddle. 
 Example 5: Same as above, If we expect stock A has a high chance for going up than going down
            we could buy two call and a put option. 
 Example 6: Same as Example 4, if we expect stock A has a high change for going 
            down than going up we could buy two puts and buy a one call.

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