hedging

What is hedging?
Well let’s say you(A) and your friend(B) are watching a cricket match between india and Pakistan .you say India will win and your friend say Pakistan will win now you both bet on it you say if India wins A give B 1000 rupees and if it will loose your friend(B) give 1000 rupees to A now in mean time one more friend C came which is a big fan of team India he said if  India wins he give you 1500 rupees and if loose you give C 1000 rupees he is giving you 1500 rupees instead of  1000 because he is quite confident that India will definitely win now if India wins you loose 1000 rupees in second  bet and gain 1000 in first bet.
And if Pakistan wins you loose 1000 in first bet and gain 1500 in second bet in all you gain 500 if Pakistan wins and loose nothing if India wins this is just lame example of hedging but in stock market we will do it by options which is perfectly legal.

NOTE:-we do not support betting as its illegal in India the above example is only used as an educational purpose

Welcome to nifty50hedging.blogspot.in  tutorial one:-

In this tutorial i am going to narrate you an option strategy calendar spread the beauty of this strategy is that risk and reward both are limited in it but there are 90% chances where you win in this trade and rest 10% risk is limited  now coming to strategy

Step 1:-we have to sell current month calls and puts.

Step2:-we have to buy another month calls and puts of same strike

Lets understand it better with the help of simple example:-

 if NIFTY is trading  at 6200 in January  well i sell nifty 6500 call January at 30 also sell 5900 put at 25 and also i buy 6500 nifty call February at 60 and also 5900 put February at 51 now trick here is that current month options loose premium more early as there expiry is near .now lets take all possibilities we will be in profit if nifty expires between range 5850 to 6550 the graph of which will look like this

possibility1:-

lets assume NIFTY expires at 5900

well profit from 6500 call and 5900 put January +30+25=+55

loss from 6500 call February which is at 15 now(- 60+15)=-45

profit from 5900 put which is at 100 now is 100-51=+49

overall profit=+55-45+49=+59 or 59*50=+2950 rupees on a capital of 50000 rupees which is a return of 6%

possibility2:-

lets assume nifty at 6100 (means between 5900 and 6200)

profit from 6500 and 5900 put January=+55

loss from 6500 and 5900 put which are now at 40 and 38

111-40-38=+33 or 33*50=1650 which is around 3.3%return

Possibility3:-

Lits assume nifty expires at 5800

Then loss on 5900 put jan which is at -100 now is

-100+25=-75

Profit from 6500 call January sell = +30

Profit from nifty 5900 feb put which is now at125 is

+125-51=+74

Loss on 6500 call feb which is now at 10 is

-60+10=-50

Overall loss=-75+30+74-50=-21or -1050 rupees

We also have the procedure to to convert this loss into profit by adjustments
after which you would have profit range from 5600 to 6800 means you have a range of 1200 points for profit which is told to our paid members and your strategy profit  graph will look like this

  for any doubt  please put your query in comments or write us at sumitbansal1805@gmail.com