Not trying to be argumentative but that’s exactly what I asked you in my earlier message and you said you didn’t do any trades
Playing devils advocate, if December liquidity is low and markets tank in July and recover fully by September as was last seen within a duration of a quarter will you be able to sell your puts when it’s down 30pc and bottoming out or you have just thought that that’s a fixed premium for a long bear market and you don’t want to cash out
Out of interest and possibly to try doing the same, what strike rate did you buy and what premium did you pay?
W.r.t hedging of equity portfolio, i would want to ask how about this strategy :
Say you have a 50 lac equity portfolio. short 1 lot of futures nifty. thats about 7.5 lacs of short exposure.
Now whenver the market goes up or sideways, keep selling OTM puts, this way you make money or say you keep increasing the cost of your short position even when market doesnt move in the direction of your short bet.
Obviously net net one will make money since the base equity portfolio is positioned long.
When the market falls, the short nifty position will start making money.
Obviously the money made by nifty short wont offset the loss of equity portfolio since the nifty short is just about 15% of the entire portfolio size.
Portfolio holdings can be pledged to create margin and hence thr only cash required is to sustain the MTM loss.
Ofcourse this strategy cant be used at all times and is to be used only in circumstances like the current one where the underlying economy is doing bad and logically markets should fall and where there is not much enough conviction to buy and where downside risks are more than upside rewards.
Would like to hear opinions on this.
W.r.t simply buying puts as a insurance, isnt time value or time decay a large component of the option primium, especially when they are far-dated ?
which means that everyday the market doesnt move in that direction, it is eroding your premium paid ?
Unlike a life insurance or a health insurance, where we buy insurance but dont plan to die or get ill to benefit from that premium paid, we are atleast sure at the end of day that if something happens, the benefits will accrue.
is that the case with simply buying puts ?
I haven’t done recently, doesn’t mean I haven’t done some time ago. I’ve bought in 3 tranches of 133, 116 & 110. When I bought, the margin regime was different else I would’ve bought a put debit spread thereby reducing my costs.
When I again buy, I plan on doing the same.
As for markets tanking, I don’t think they’ll tank by July or August. If they do tank, I will wait for trend reversal signal before exiting, if there isn’t a trend reversal signal and NIFTY price is below my strike, then i’ll keep the puts till maturity.
What you are doing is trading - and that won’t end good if you’re not good at trading even if you’re good in investing.
I had gotten out of all my longs in late 2017 seeing that market can’t go higher, which was a great call, since I’m was almost wholly invested in mid and small caps. But the money I saved, I lost trying to short the market. Since in India, you can’t short individual stocks, you’ve to short futures/options; and they’re all large caps.
As such, I was shorting calls and losing money for two whole years. That’s what the above strategy would do, you can be right in the general direction - but be losing in the specifics.
