HEDGING – Protecting capital in UPS & DOWNS

HEDGING means protecting capital in sudden reversals of market.

For example,

If we bought Drreddy in dip@3000 but there is a risk of futher dip ahead.

So we can buy Drreddy future with put(3000strike price)

If we are buying 20/50shares in cash only,then small put with lower premium is enough(2500/2700strike price)

Hedging may be possible in many ways-

1.buy future +buy put

2.sell future + buy call

3.buy future dec+sell future January with small Stoploss both side

4.Buy most active call+put with small stoploss

5.Sell far out of money CALL+PUT with strict stop loss in 3rd/4thweek

Writing call & put has unlimited losses.If you buy call/put in rs100 premium,then it may reduce to zero.

If you sell call/put at rs100,then it may go to 400/600/1000 or anywhere. So unlimited losses are possible.

SYMBOL FOR INSTRUMENT TYPE (FUTURES & OPTIONS)

FUTIDX – index futures (nifty/bank nifty future)

OPTIDX- index options (nifty/bank nifty CALL/PUT)

OPTSTK- Stock options (acc to zeel CALL/PUT)

FUTSTK- stock futures (around 500+ futures available)

All stock & index options are not having regular volume.

There are 40-50stock options are having regular volume.

How can you recognize less volume options?

Option chain is blank in most part.

There is a big difference in ask & bid price.

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