What is the best strategy for hedging the future with an option? - Finideas (2024)

Please note that hedging Futures’ Risk with options depends on market situation, your risk taking capacity and the amount of your investment.

Generally People believe if you long Futures can be hedged with Long Put or short call and short Futures can be hedged with Long Call or Short Put. But they don’t know…

Future Buy + Put Buy = Synthetic Call Buy
Future Buy + Call Sell = Synthetic Put Sell
Future Sell + Call Buy = Synthetic Put Buy
Future Sell + Put Sell = Synthetic Call Sell

This are called Formulas for Synthetic Derivatives.

e.g. If you buy Nifty Future at Rs. 10541 and Buy 10500 Put at Rs. 46 to hedge risk of future then it will be the same as buying 10500 Call at Rs. 84. (I picked current price) That means instead of doing 2 trades and large investment you can earn same money with 1 trade and small a investment.

That means you need to apply option strategies for hedging futures risk instead of buying or selling necked option.

I think you must opt a course from FinIdeas i.e. Smart Futures’ Trader. This course contain following most important topics for hedging future’s risk through Options.

Futures: Meaning, Terminology, Pricing and Settlement
Margin Calculation, Rewards & Risk in Futures Trading
How and when can we get stuck in Futures Trading? (Think but don’t take this question for granted)
Call – Put Options – Meaning, Payoff & Break Even Points
Formula for Synthetic Derivatives (Most Important topic for fund management & Risk Management)
Options Strategies – Bull & Bear Spreads & Ratio Spreads
Risk hedging concepts.
Hedging long Futures with necked Options trading & Options Strategies.
Hedging Short Futures with necked Options trading & Options Strategies.

This is an online course so you can learn at your convenience time and place. You can learn all this thing in only 8 -10 hours. You can visit www.finideas.com for more details.