Futures hedging ?

#1
Is there any way by which futures can be hedged in such a way that it reduces a bit of profit if the price goes in my direction but limits my losses to major extent when the prices stay in range or goes in opposite direction ?

Please suggest some strategies
 
#3
Is there any way by which futures can be hedged in such a way that it reduces a bit of profit if the price goes in my direction but limits my losses to major extent when the prices stay in range or goes in opposite direction ?

Please suggest some strategies
futures can be hedged by options
 
#5
basically option derivatives were developed for hedging purpose only
but
we traders made options a tradeable instrument :DD
 
#6
@tanmayagrawal
its simple,
buy options, of opposite side of future trade
eg if you are long futures, buy puts (or write calls) to hedge and vice versa
 
#7
But then to be profitable I need the future to move to atleast put premuim to break even, right? And Also if the market moves in range , I will be suffering lossess
 
#8
Futures are created for hedging and not for trading , but now traders are doing speculations in futures at a large scale.

Do not use options for hedging as they have time value + intrinsic value and due to time decay , you will lose the options price so hedging should be done only when you are long in cash and if you fear then you can take the future lot size after calculation .

I will advice you to use index futures for hedging as it does not have liquidity problem and it is easy to calculate too .

Please check the correlation too with both the securities before all these.
 
#9
Futures are created for hedging and not for trading , but now traders are doing speculations in futures at a large scale.

Do not use options for hedging as they have time value + intrinsic value and due to time decay , you will lose the options price so hedging should be done only when you are long in cash and if you fear then you can take the future lot size after calculation .

I will advice you to use index futures for hedging as it does not have liquidity problem and it is easy to calculate too .

Please check the correlation too with both the securities before all these.
If futures are not for trading, then what is? Cash market? On the other hand, hedgers can't hedge effectively if there are no traders to provide liquidity in the futures market. I understand that you don't want to recommend that people trade leveraged instruments & lose a lot of money but saying that futures are not for trading is a bit too much, given that there's almost always 1:1 correlation between a stock & its future, plus, futures have lower margin requirements, better capital-efficiency, possibility to go short overnight & lower trading-taxes; so futures seem more suited to "trading" than Cash market since I presume the word "trading" entails a desire for greater gains than "investing", & of course, greater gains often necessitate greater risks. Now, I'm NOT suggesting that futures trading is suited for everyone but sorry, I can't agree that "futures are not for trading".

I agree that fighting time-decay can be a very difficult proposition unless one is very good at sensing impending large moves but not many are good at such a thing, so definitely not advisable for most people.
 
#10
There is no hard rule that one should not trade futures or options. One should trade an instrument in which one is comfortable, whether it is equity and/or future and/or options.
For me I am comfortable in trading options, so I trade options, yeah I also lost money, but I also made money and good money in trading options (buy side only), inspite of time decay.
One will make money in market, only if one is on right side (with some exceptions) and not otherwise.
 

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