Limited Risk Strategies

Case 1: Strategy for investors with limited money: The below mentioned strategies are for retail investors, who have limited investible surplus available with them. For example: If a trader has a bullish view on Nifty, he can do one of the two things: a) He can buy Nifty Futures: In this case the trader has deposited margin of Rs.26,000 upfront and if the market moves up, he stands to gain. But if the market moves against his expectation (i.e. down) than he has unlimited losses. Or b) He can buy Nifty Call Option: In this case the margin requirement comes down significantly. Investor has to pay only the premium margin while buying the Call option. Also the losses are limited to the premium paid and if the market moves up then the trader gains.

View Bullish Investment Profits if Nifty expires at 2900 Maximum loss expected

(a) Futur es str ategy Buy April Futures at 2600 Rs. (2600*50)*0.20= Rs. 26000 Rs. (2900-2600)*50=Rs.15000 Unlimited

(b) O ptions str ategy Buy 2600 Call at 55 Rs. (55*50)=Rs.2750 Rs. (2900-2600-55)*50 = Rs.12250 Rs.(55*50)= 2750

Case 2: Strategy for investors who want to limit their losses : If a trader has directional view and he wants to limit his losses then he can use Hybrid strategies, which are a combination of Futures & Options or Options & options. For example: If an investor is bullish on Nifty, he can buy Nifty Futures and also Nifty put option to protect long position for possible downsides. If the market moves up, the customer stands to gain. But, if the market moves down, the losses are limited to the cost paid (option premium) for getting protection.
Spot closing at expiry 2500 2650 2675 2800 -100 50 75 200 50 -50 -50 -50 -50 0 25 150 -2500 0 1250 7500

Instrument F P

Action B B

Strike 2600

Price No. of lots 2200 2600 1 -400 50 1 350 Profit/Loss per share -50 Total Profit/Loss -2500

3000 400 -50 350 17500

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