iCharts Discussions

[voyager]

hello,
I have a quarry from the esteemed experts of this forum.I have short one lot of rel infra Sept. futures @ 361.00 From Option chain(equity derivative) September on dated 23.08.2013 it is learnt that open interest at 300 strike price pe is 40000(maximum) and open interest at 360 ce strike price is 17000(maximum)
as it is said nifty may go to 5750 or 6100, in Aug. expiry, then to protect my position I want i hedge it by selling 360 pe. as the price of the script rise the cost of put will decline.
My quarry is that, how much of pe option should i write to protect my money and position.
I suppose I am able to present. If it is stupid quarry, pl ignore otherwise i will obliged to get an answer.

[paa]

equal lot I think

[vinay28]

qty can be decided by the amount you want to save from your cost.

[svkum]

voyager ,

you can either buy call (may be 360 sp)
or sell 340, or 320 put
but you need to monitor options very closely.

selling options may need margin money and adjustment for MTM .

[amexhui]

The real question for you to reply is : what is the extent of hedging needed for the future lot that you're short ?

If you want the 360 PE short option to hedge your short future loss at a 1:1 ratio ( in case of increase in spot price as you suspect ), you need to look at the option greek delta. Delta for the 360PE is @ -0.57 at this time. So every 1 rupee increase in the spot price will result in a decline of 57 paise in the 360PE option and vice versa.

That basically means you've to short approx 2 lots of the 360PE option to cover for your future short to maintain a 1:1 hedge

[pkholla]

[voyager]

That's fine. Thanks

[voyager]

That's fine. Thanks