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Class 07 Know

This document discusses future hedging strategies and how to trade them. It describes a full future hedge where buying futures and puts is combined with shorting deep ITM calls to reduce margin requirements while limiting downside risk. It also discusses adjusting the hedge if support is broken by buying additional out of the money puts or creating put spreads.

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107 views8 pages

Class 07 Know

This document discusses future hedging strategies and how to trade them. It describes a full future hedge where buying futures and puts is combined with shorting deep ITM calls to reduce margin requirements while limiting downside risk. It also discusses adjusting the hedge if support is broken by buying additional out of the money puts or creating put spreads.

Uploaded by

subuji05
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CLASS 07 - FUTURE HEDGE

AND HOW TO TRADE


DATE 10/04/2022
BY SHANU TADVI
Index
 Future Hedge (H-20)
 Full Hedge
 Future Hedge Adjustment
Future Hedge
In this Hedge, we buy Future with limited loss but unlimited profit
with reduced margin. This is done by buying Future and buying put
option with 70% chips and Sell future and buy call option with 70%
chips for sell side.
This trade is taken when you are in Dilemma if market would
continue trend or not. Market could even reverse from your trade
area and yet you will be in profit, the only condition is there has to
be a momentum either side.
Lets see how this trade works.
As we can see we can reduce margin in margin calculator and at the
same time we defined loss and limit the loss which can be seen in
graph. We can see that if market went with our view we can have
unlimited profit but loss is limited if market turn.
But if market is stable and sideways.. You might see loss due to loss in
premium in put side.. Hence you need momentum for this trade to
work. This trade is best to initiate at support or resistance specially
strength wise resistance where market is over bought and you have
no clue if you should do short or long at that point.
This hedge is similar to H-23 which we saw last class where we target
Hawa in which case we have limited profit. In the case of H-23 buy
side or even side ways market can make you profit, but if market
reverse you need to adjust after certain point.
We can mix both of the hedges and make a full hedge out of this to
make it very safe trade.
Full Hedge
As you can see we have combined Future Hedge and H-23 where
we have bought Future and 70% chips put.. And also shorted deep
ITM 70% chips to save the premium of put hence this hedge can
give you profit call side, put side and sideways or range bound
market. As you can see in this trade upside profit is unlimited but
downside loss will started from 15512 without adjustment. (Future –
Selling Premium i.e. 16387 - 875)
Adjustments for Future Hedge
Future Hedge (H-20) is meant to be done at support or resistance from where market could reverse. In Following
trade lets see how would we adjust trade if support is broken.
Initiating H20 on Support @ 15000 which is,
Nifty Fut buy @ 15000 (1 lot)
Nifty 15500 PE buy @ 650 (1 lot)
(76% chips ITM)
Assuming Support is broken and market seem to go down, we will buy Far OTM month PE something like,
Nifty Fut buy @ 15000 (1 lot)
Nifty 15500 PE buy @ 650 (1 lot)
14500 PE buy @ 100 (1 lot)
Lets say market came down to 14500 and now reversing again, now the extra PE that we bought will be in loss..
So we would sell further PE and make a spread something like
Nifty Fut buy @ 15000 (1 lot)
Nifty 15500 PE buy @ 650 (1 lot)
14500 PE buy @ 100 (1 lot)
14300 PE sell @ 50 (1 lot)
Now trade is protected even if market is reversed.. If trend is clear we can Pyramid sell if margin available.

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