1)NIFTY HEDGING --- II Cover in F&O ( Derivatives )
I.INTRODUCTION
Nifty Hedging is a Trading Strategy devised to insulate “Mark-to-Market (MtM)” risks for Day-Traders’.
NIFTY’s M2M Risks :
Following factors influence NIFTY Futures on a continuous basis :
- a) Global Market Indicators
- b) National and International Events
- c) Television & Newspaper Reports
- d) Corporate Results and information’s
- e) Online recommendations
- f) Algo trade
Day-Trading or Traders’ Risks (DTR)
Factors
- a) Global Market Indicators
- b) National and International Events
- c) Television & Newspaper Reports
- d) Corporate Results and information’s
- e) Online recommendations
- factors "a" to "e" contribute wild fluctuations in NIFTY Futures during Intra-day and thus Intra-day Traders’ are more prone to M2M to risks.
II NIFTY Hedging Trading Strategy :
Day Traders’ with Bull Perception :
SELL :
NIFTY (in the money) Call Option
Example (SELL)
NIFTY (in the money) Call Option
11900 CE can be sold around Rs.123/- (i.e. 1.1% premium to 1st month
NIFTY Futures) on 1st trading cycle (i.e. last Friday of the Current
month).
OR
Day Traders’ with Bear Perception :
SELL :
SELL :
NIFTY Futures (1st Month)
NIFTY (in the money) Put Option
Example (SELL)
NIFTY Futures HEDGED Contract prone for Unlimited profit/loss
Example (SELL)
NIFTY (in the money) Put Option
11900 PE can be sold aroud Rs.125/- (i.e. 1.15% premium on 1st month
NIFTY Futures) on 1st trading cycle (i.e. last Friday of the current
month)
BUY :
NIFTY Futures (1st Month)
Example (BUY)
By Buying NIFTY Futures (1st Month) say around 11900, we are HEDGING
the 11900 CE sold at Rs.125/-.
Operational risks :
a) If the NIFTY moves up :
Futures will also move up with M2M profit. Similarly 511900 CE there
will be M2M loss.
Net Financial Result
Hedged Contract is carried/squared up on the expiry period, 11900 CE
premium of 1.1% will cease to exist and this premium money of 1.1%
i.e. Rs.125/- per lot (75 X 125 = Rs.9,375) can be capitalized by a
Trader.
b) If the NIFTY falls further :
Futures Unlimited M2M loss. 11900 CE there will be a profit on premium money.
Net Financial Result
Traders’ must apply STOP LOSS of around 75/- per lot on HEDGED NIFTY
Futures and capitalize the premium money profit on 11900 CE contract by
squaring up the HEDGING.
2. 50% BOOK PROFIT AT THIS LEVEL.
Operaional risks :
- a) If the NIFTY falls
Futures Contract will yield unlimited profit. 11900 PE is prone for
unlimited loss minus premium money of Rs.125/-
Net Financial Result :
HEDGED contract is carried/squared up on expiry period, NIFTY
Futures Unlimited profit will set off the loss on 11900 PE Contract
Unlimited loss. Premium earned on 11900 PE i.e. Rs.125/- (Rs.75 X
125/- = Rs.9.375) can be capitalized by a Trader.
- b) If the NIFTY moves up
Futures contract prone for Unlimited loss. 11900 PE Contract there will be a profit on premium money.
Net Financial Result :
Traders’s must apply STOP LOSS of around Rs.75/- per lot on HEDGED NIFTY Futures and capitalize the premium money profit on 11900 PE contract by squaring up the HEDGING
Equity :
Trading in equities involves more than stock trading. Equity trading in the stock markets can involve many different securities, requiring diverse strategies and trading skills. Equities may be traded for short-term and long-term profit . Designed the statergy based on the Company Movement for the particular period
Option :
For the mature investor, who is aware of risks in the market, Derivatives could be a great way to trade, and we offer a robust platform to trade Derivatives.
Derivatives lets you trade in a large number of stocks and also in Index for a small margin. For example, if you had only Rs 2 lakh instead of Rs 10 lakh to buy a stock, by paying margin of Rs. 2 Lakh you can create position in Derivatives Futures for higher value.In option you a Premium Hold the position and risk is also restrict
to the amount invested.