I posted this in some other thread too. Posting here to get more response !
Very new to Options. Please reply this very basic question :
I wish to trade Options based on my directional or view on levels. Examples :
Say at the start of the derivative month, Nifty is 7800, and my view is that Nifty may correct but will not close below 7500. During the month Nifty goes down to 7560 and recovers and crosses 7900.
a. If I bought a 7900 call at the start of the Month, how should I hedge it ?
b. I sold a 7500 PUT at the start of the month, how should I hedge it?
Thanks.
some of the bright things that you are having as new to option are
- you are trying to use options for directional trades
- you are considering them at the beginning of the month
in fact there is nothing called pure hedge/holy grail/fool proof methods in trading!!
If you do your "a" and "b" both at a same time it itself is a hedge!!
If you are trying to hedge a hedging instruments itself then you are trying to play structures/strategies, which got its own pro and cons as every method will have them...
Now to individually answer your questions-
- the way you analyzed that it will beneficial to buy 7900 CE, you may be having some targets, assume your target is 8100 then to hedge it you can sell 8200 options till it cover the buying cost....
other type is
- you sell 1 lot of 7800 CE and buy 2 lots of 7900 CE
same for PE side... but if you can share more details on your trade and need one by one then we can take it to next level of discussion....
