What is HEDGING & How to take Advatage - By CaptainHELLO MEMBERS
HEDGING IS A TECHNIQUE WHICH CAN HELP YOU SAVE YOUR CAPITAL AND BE ON A SAFER SIDE, ITS IS APPLIED WHEN THE MARKETS ARE DIRECTION LESS OR THE STOCK IS DIRECTION LESS AND YOU DONT WANT TO TAKE ANY RISK AND THERE IS A NARROW RANGE OR A RANGE BOUND SITUATION THEN YOU CAN DO HEDGING.....
HOW IS HEDGING DONE AND HOW CAN IT BE USED?
HEDGING IS A TECHNIQUE WHICH CAN HELP YOU SAVE YOUR CAPITAL AND BE ON A SAFER SIDE, ITS IS APPLIED WHEN THE MARKETS ARE DIRECTION LESS OR THE STOCK IS DIRECTION LESS AND YOU DONT WANT TO TAKE ANY RISK AND THERE IS A NARROW RANGE OR A RANGE BOUND SITUATION THEN YOU CAN DO HEDGING.....
HOW IS HEDGING DONE AND HOW CAN IT BE USED?
MAINLY HEDGING IS DONE IN OPTION TRADES, WHERE ONE CAN BUY A STRIKE PUT AND A STRIKE PRICE AND AS PER THE RANGE IN THE MARKET THEN CAN BUY AND SELL THE CALL OR A PUT IN PROFIT AS PER THE RANGE, LIKE THIS ONE CAN BE SAFE AS PER THE DIRECTION IS UNCLEAR AND IF THE MARKETS COME DOWN THEN THE PUTS WOULD INCREASE AND CALLS WOULD DROP AND AS THE RANGE IS BROKEN THEN YOU CAN HOLD PUT AND SELL THE CALL, AND AS THE MARKETS INCREASES THEN THE CALL WOULD ROCK AND THE PUT WOULD DECREASE BUT KEEP IN MIND THAT THE RANGE IS BROKEN THEN EXIT PUT IN LOSS AND ENJOY PROFITS IN THE CALL.....
IF THE RANGE OF THE MARKET IS NOT BROKEN, THEN YOU CAN EXIT CALL IN PROFIT AND WAIT FOR A ROUND CYCLE OF THE RANGE BOUND MARKETS AND BOOK PROFITS IN PUT ALSO AT THE LOWER END...
SO HEDGING CAN BE DONE IN THE RANGE BOUND SITUATION AND A DIRECTION LESS MARKET.....
OTHER PROCESS OF HEDGING IS YOU BUY A STOCK IN THE MARKET OR A STOCK FUTURE OR A INDEX LIKE NIFTY OR BANK NIFTY AND YOU FEEL THAT THE MARKETS OR THE STOCK CAN DROP ALSO OR YOU ARE UNSURE WHERE THE STOCK IS GOING TO MOVE, THEN WHAT YOU CAN DO IN SUCH A SITUATION IS THAT YOU CAN BUY THE STOCK AND BUY PUTS OF THE STOCK AND IF YOU ARE SHORT THEN YOU CAN BUY CALL OF THE STOCK OR INDEX.....
BUT KEEP IN MIND THAT OPTIONS ARE RISKY AND THE CONTRACTS GET TO EXPIRE AS PER THE EXPIRY PERIOD CYCLE, AND ALSO KEEP IN MIND THE RULES FOR TRADING IN OPTIONS, THE STRIKE PRICE SHOULD BE WATCH OUT, HOPE ALL OPTION TRADERS KNOW THE RULES, THE STRIKE PRICE SHOULDNT BE FAR AWAY AND ETC ETC....
IN SHORT HEDGING IS DONE TO MAKE OUR CAPITAL SAFE IN A RANGE BOUND MARKET AND DIRECTION LESS MARKET......
EXAMPLE : -
NIFTY CMP 5200 & A DIRECTION LESS MARKET & ONE HAS 1 LOT OF NIFTY AT 5200 FUTURES, NOW TO PROTECT THE CAPITAL ONE CAN BUY 5300 PUT OR 5100 PUT WITH THE LONGS ON A HOLD, WITH A PROPER STOP LOSS....... THE STOPLOSS FOR LONGS IS 5160 AND STOP LOSS FOR PUTS IS 5250.....
NOW SUPPOSE THE MARKETS TAKES U TURN AND COMES DOWN THEN EXIT THE LONGS ON STOP LOSS AND HOLD ON THE PUTS WHEN THE RANGE IS BROKEN AND WHEN THE PUTS HITS STOP LOSS AND THE RANGE IS BROKEN THEN ONE CAN EXIT PUTS IN LOSS AND HOLD LONGS......
EXAMPLE : -
SUPPOSE YOU SEE 5100 CALL AND 5200 PUT AT 20 RS EACH AND THE MARKETS ARE RANGE BOUND THEN ONE CAN INVEST IN BOTH THE CALL AND PUT AND AS THE RANGE IS BROKEN THEN ONE CAN LET GO ONE AND HOLD ON TO THE OTHER ONE AND EXIT IN PROFITS AS AND WHEN AND STOP LOSS IS MUST FOR ALL.....
IF YOU FACE ANY PROBLEMS THEN YOU CAN REVERT BACK.....
I HOPE I CLEARED YOUR DOUBTS....
IF THE RANGE OF THE MARKET IS NOT BROKEN, THEN YOU CAN EXIT CALL IN PROFIT AND WAIT FOR A ROUND CYCLE OF THE RANGE BOUND MARKETS AND BOOK PROFITS IN PUT ALSO AT THE LOWER END...
SO HEDGING CAN BE DONE IN THE RANGE BOUND SITUATION AND A DIRECTION LESS MARKET.....
OTHER PROCESS OF HEDGING IS YOU BUY A STOCK IN THE MARKET OR A STOCK FUTURE OR A INDEX LIKE NIFTY OR BANK NIFTY AND YOU FEEL THAT THE MARKETS OR THE STOCK CAN DROP ALSO OR YOU ARE UNSURE WHERE THE STOCK IS GOING TO MOVE, THEN WHAT YOU CAN DO IN SUCH A SITUATION IS THAT YOU CAN BUY THE STOCK AND BUY PUTS OF THE STOCK AND IF YOU ARE SHORT THEN YOU CAN BUY CALL OF THE STOCK OR INDEX.....
BUT KEEP IN MIND THAT OPTIONS ARE RISKY AND THE CONTRACTS GET TO EXPIRE AS PER THE EXPIRY PERIOD CYCLE, AND ALSO KEEP IN MIND THE RULES FOR TRADING IN OPTIONS, THE STRIKE PRICE SHOULD BE WATCH OUT, HOPE ALL OPTION TRADERS KNOW THE RULES, THE STRIKE PRICE SHOULDNT BE FAR AWAY AND ETC ETC....
IN SHORT HEDGING IS DONE TO MAKE OUR CAPITAL SAFE IN A RANGE BOUND MARKET AND DIRECTION LESS MARKET......
EXAMPLE : -
NIFTY CMP 5200 & A DIRECTION LESS MARKET & ONE HAS 1 LOT OF NIFTY AT 5200 FUTURES, NOW TO PROTECT THE CAPITAL ONE CAN BUY 5300 PUT OR 5100 PUT WITH THE LONGS ON A HOLD, WITH A PROPER STOP LOSS....... THE STOPLOSS FOR LONGS IS 5160 AND STOP LOSS FOR PUTS IS 5250.....
NOW SUPPOSE THE MARKETS TAKES U TURN AND COMES DOWN THEN EXIT THE LONGS ON STOP LOSS AND HOLD ON THE PUTS WHEN THE RANGE IS BROKEN AND WHEN THE PUTS HITS STOP LOSS AND THE RANGE IS BROKEN THEN ONE CAN EXIT PUTS IN LOSS AND HOLD LONGS......
EXAMPLE : -
SUPPOSE YOU SEE 5100 CALL AND 5200 PUT AT 20 RS EACH AND THE MARKETS ARE RANGE BOUND THEN ONE CAN INVEST IN BOTH THE CALL AND PUT AND AS THE RANGE IS BROKEN THEN ONE CAN LET GO ONE AND HOLD ON TO THE OTHER ONE AND EXIT IN PROFITS AS AND WHEN AND STOP LOSS IS MUST FOR ALL.....
IF YOU FACE ANY PROBLEMS THEN YOU CAN REVERT BACK.....
I HOPE I CLEARED YOUR DOUBTS....
Regards
Treasure Captain
www.moneybaghunting.blogspot.com
http://twitter.com/moneybaghunt
Treasure Captain
www.moneybaghunting.blogspot.com
http://twitter.com/moneybaghunt
Yahoo User ID - moneybaghunt
Live Conference at www.treasurebag.ning.com
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