Sharekhan Blog


  • Jun 12, 2023

Here is a list of helpful strategies you can utilize to successfully navigate through the volatile phases of the market for F&O trading.

1. Safeguarding the investment portfolio

When the trip on the market gets bumpy, hedging is an essential strategy to have. After gaining a grasp of the make-up of a portfolio, hedging it can be accomplished by the purchase of a Nifty Put or Bear Put Spread, which involves employing monthly contracts or long-dated options.

The strategy of hedging would be determined by the types of stocks in the portfolio as well as the beta of the portfolio. When compared with names of mid and small-cap companies, for instance, it is much simpler to calculate the beta and devise a hedging strategy in a portfolio that contains a large-cap Nifty name.

One must determine the appropriate instrument for hedging (Nifty or stocks), the appropriate strike and quantity for spread, and, last but not least, monitor the position and determine when to leave it before including mid-cap stocks in a portfolio.

2. Establish short bets in several stock futures markets.

In a bear market of F&O stocks, selling futures presents an opportunity since a significant number of poor equities experience substantial price declines. Following a trend, until it becomes impossible to do so is sound advice at any time. When the market is moving in an unfavourable direction, taking a short position in the market should be more profitable than going long.

3. Bringing in profits through the use of call writing 

Call writing is the approach that decreases the cost of maintaining positions and provides additional yield on an existing position. It is also the method that is the most effective and well-known.

To accomplish this, investors need to choose stocks for which they will do option or put writing based on the liquidity of such stocks and the maintenance of a margin of safety while writing strikes. The buffer and a suitable premium yield can be used as a basis for determining the strike price. Traders have a responsibility to monitor the position by including specific signals into the system. These alerts will assist in deciding on the exit mechanism or the trailing mechanism.

4. Trading long and short positions 

Pair trading provides an additional advantage in these kinds of market conditions since many pairs, like HDFC Bank and HDFC, have a strong correlation, and because these pairs offer opportunities when they vary from their mean. Because both equities have both long and short exposure in the market, pair trading has a relatively low level of risk.

5. Participating in the trading of options strategies and option spreads -

When investors are pessimistic about the direction of the market, volatility tends to stay up for an extended period, which also results in a greater option premium and increased market risk.

Even though the option premium is large, options writing is not a strategy that should be utilized in situations where implied volatility (IV) is higher. Instead of merely selling out-of-the-money (OTM) calls and puts, it is recommended that traders utilize the Butterfly and Iron Condor trading methods instead.

Conclusion -

In the world of long-term investing, fundamental analysis serves as the compass. In a similar vein, traders will find that the most successful instrument for making a profit in this constantly shifting market is technical analysis.

These articles have been prepared by Sharekhan and is not for any type of circulation. Any reproduction, review, retransmission, or any other use is prohibited. Sharekhan shall not be responsible for any unauthorized circulation, reproduction or distribution of this material or contents thereof to any unintended recipient. Kindly note that this page of blog articles does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The value of the investments may be affected generally by factors affecting financial markets, such as price and volume, volatility in interest rates, currency exchange rates, changes in regulatory and administrative policies of the Government or any other appropriate authority (including tax laws), or other political and economic developments. Please note that past performance of financial products and instruments does not necessarily indicate the prospects and performance thereof. The investors are not being offered any guaranteed or assured returns. The securities quoted are exemplary and are not recommendatory. While we would endeavour to update the information herein on a reasonable and timely basis, Sharekhan, its subsidiaries and associated companies, their directors and employees are under no obligation to update or keep the information current. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of use of the trading platforms mentioned herein. The trading avenues discussed, or views expressed herein may or may not be suitable for all investors. This information is only for consumption by the client, and such material should not be redistributed.

Team Sharekhan
by Team Sharekhan

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