Activities designed to reduce the risks imposed by other activities. If a business has to hold stocks of a commodity, it runs a risk of making losses if the price falls. This loss can be avoided by hedging, which involves selling the good forward, that is for delivery at an agreed price on a future date, or by going short in futures contracts. If there is a contract on the specific good the business trades, it may be possible to remove the risk completely by hedging. If there is not, the price of the particular good held may not move in precisely the same manner as the standard commodity traded in forward or futures markets, but provided that there is some correlation between the two prices, hedging reduces the risk. An alternative method of hedging the risk of stock-holding is to buy a put option, which allows but does not compel the holder to sell at the contract price. Similarly, a firm which knows it will have to obtain supplies of a good at a future date may wish to protect itself against the risk that when the time comes the cost of the goods will be very high. It can hedge this risk by buying forward or buying a futures contract, or by buying a call option, which gives it the right but not the obligation to buy at the contract price.