There can be a time in the market when one wants to have a portfolio which is neither bullish nor bearish. In a certain range , the portfolio makes money , out of the range upto a certain point one remains neutral. This is the ideal situation when markets are overbought and terms like ‘MELT UP ‘ are bandied about.

Hedging means just that. One can hedge by options as well as futures. However it is strongly advised not to carry out any hedging unless you are familiar with all strategies for options and futures.

What are options

Options are of two types. Call and Put options. For the uninitiated , it can be difficult to understand at first. In simple terms options are purchasing or selling a contract to buy or sell the underlying(named by the contract) at  a future date at a fixed price. This can be likened to a advance payment done when you go and purchase a house. you get a fixed period where you have to pay the total amount. Similarly in options , you either sell or buy a contract. (However in the stock markets you dont have to own a stock to sell  a contract built around that stock)

Hedge funds use this anomaly to safe guard their investments by hedging with option contracts. There will be always instances when event based huge falls may occur. This is the time the hedging comes to the rescue.

It is always good to have knowledge about various aspects of the markets. In our ‘Master Class’ we will be covering all aspects of hedging and different strategies in trending and sideways markets


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