Hedging Cash Segment Shares for Retail Investor !

#1
Read lots of time that you can buy share in Cash Segment and to protect your position you can hedge by buying a put option.

Now, quantity of one lot of Put is very high. For example for Tata motors , 1 lot has 1500 quantity. So If I want to hedge Shares of Tata Motors , it can be done only if I buy shares of Tata motors in Cash Segment in multiple of 1500. which is huge amount of money around 5.5 Lakhs as per CMP of Tata Motors for retail investor.

Is there some other way to hedge for retail Investors ? Kindly explain in detail.
 

praveen98

Well-Known Member
#2
Read lots of time that you can buy share in Cash Segment and to protect your position you can hedge by buying a put option.

Now, quantity of one lot of Put is very high. For example for Tata motors , 1 lot has 1500 quantity. So If I want to hedge Shares of Tata Motors , it can be done only if I buy shares of Tata motors in Cash Segment in multiple of 1500. which is huge amount of money around 5.5 Lakhs as per CMP of Tata Motors for retail investor.

Is there some other way to hedge for retail Investors ? Kindly explain in detail.
There is a way by selling index future or by buying index Puts. But our portfolio should be of a reasonable size as the lot size of Index futures is around 8 lakhs. Please go through the following link to learn how to do it...Even though the content is about US stocks same principles apply in our country also.
https://www.investopedia.com/articl...-highly-effective-hedges-with-index-leaps.asp
http://www.theoptionsguide.com/portfolio-hedging-using-index-options.aspx
Hope this helps...
All the Best.
 

cinderblock

Well-Known Member
#3
It doesn't matter how many shares you have in the cash segment. You can always hedge it with appropriate Puts.

Suppose you have 600 shares of Tata Motors. You need to find a OTM Put Option whose Delta = 600/1500 = 0.4

Buy 1500 shares (1 lot) of OTM Puts whose Delta is 0.4 and you will hedge your 600 shares even if the lot size is 1500.

PS- This is the basic idea but to maintain the hedge near expiry and rollover some adjustments are needed.
 
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