Arnav/Alex,
OK about the hedging part .Now how do i utilise my 'Direction' understanding ability to Earn & also to overcome the over night Risk or some imp Level reversal probabilty of Price .
An example if given then better for me to understand or you can use this info to guide me,i am Short in Nifty Fut from 3125 & booked some profit to bring out the cost of 2800 put ,bought @ 27.95 ,which also i am holding.
As i am not through in Option so unwillingly booked some more lots of Future today @ 2717.
What i should have done to hold my Futures & Puts total Qtys.
Asish
Well there are different ways in which you can hedge and Book profits. Your way of Booking Profits in Nifty and holding Your Puts is very good method in itself as ->
a)You have easily managed to book the Profits in this case.
b)Your Overnight risk is also less now, As if there is a Gap up opening now, You will not lose Much because you have booked some profits in Futures(they carry unlimited risk) and the value of your Put wont decrease much cause they have limited risk.
But your question was, if you could have done something to hold on to your Original Quantity of shorted Futures and Puts Brought But at the same time Booked some Profits and Even Hedged some Overnight Risk.
Answer Is Yes.But, Again there are different Methods here.
First of lets check the What are the Risks involved in your Holdings.
a)A gap Up Opening which will decrease the Value of your Put and also give you unlimited loss in the Future you are holding.
b)Decay in Time value of your Puts.
Now to hedge lets take the Futures and Puts Separately.
First, To hedge your Puts, Brought @ 28 -->
a)When @ 2717, you decided to book profits, At that time, you could have Sold 2700 or 2600 Puts (depending on your targets on nifty and amount of risk you want to cover.)
But How does this Cover your risk and at the same time book profits ?
Well As you brought your 2800 Puts @ 28 and now you will sell your say 2600 @ 80(it was trading at this price only around 2717 nifty future). Clearly Total Premium Paid by you is 28 whereas total Premium received is 115 therefore Regardless of where the market opens the next day of even closes for that matter on expiry, you will always have a Profit of (80-28) = 52 on your Puts.
But Currently the Puts are trading @ 150 ? so why look for 52 Profit ? Well actually 52 is the minimum profit you will get even if nifty goes up and closes above 2800 @ month end.
Also if you Sell the 2600 Puts Now the Maximum profits in your 2800 Puts will be limited to --> 252 i.e at any close below 2600.
So what this Strategy has done for you is -->
a)Limited your Maximum Profit to 252, But at the same time Guaranteed you atleast 52 as profits where-ever the market goes.
b)It has also hedged you against the decrease in premium because of decay in time value of 2800 Puts you brought as now if Premium in 2800 Puts decreases, so will the Premium in 2600 Puts that you sold therefore protecting you from the That risk.
2nd case was to Hedge you from the Futures you Shorted. Here you have 2 options -->
a)Either Buy 2800 call (but use is just to protect overnight risk and prefer to sell it the next day.)
b)Sell Out of money Puts. i.e again sell a 2700 or 2600 Put.
Use option A if you think Markets may either give a sharp bounce-back or if fall very sharply in the next few coming days.
Use Option B if you see the markets a bit range bound now or decreasing very slowly.
Option A will
NOT limit your Maximum Profit, But will start to eat away bits of your Profits(cause of time decay) if the Markets do not move in any 1 particular direction.
This option will also Limit your Maximum Loss in case nifty goes up sharply.
Option B will Limit your Maximum Profit, But will be very Profitable if the market stays a bit range-bound.But this
will cover only a Part of your loss(i.e premium received from Put sold) that may arise if the markets move up sharply.
Long Future, I would call it a Box 
