How to hedge small cap portfolio with FNO?

Hello everyone,

I have a small cap focused portfolio containing multiple small-cap mutual funds and stocks. Generally, people buy PUT options to hedge against any severe fall but I could not find any small cap index in FNO tickers. Buying NIFTY options will not be beneficial in my case as both the indexes are not corelated.

Can someone share their strategy for hedging their small cap investments? Please also share if you’re using something else other than FNO.


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I am not too sure about hedging MFs with derivatives. MFs are for long term, and fund managers will take care of what to buy and sell, also they may already be doing some hedging.

As far as hedging small cap stock PF is concerned, you can check the impact on your PF w.r.t Nifty’s fall, also in absolute terms, and see if by using derivatives how much of that loss can be covered. And how long you want to do this for, using weekly or monthly, how much premium would you pay for protecting the PF.

There are no derivatives available for small cap indices, although if Nifty does not work for you, you can see Nifty Midcap MIDCPNIFTY. I don’t know about the liquidity here.

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Hi Avneesh,
I understand your concern.
I would suggest to directly move your money in the stocks like Sanmit Infra, Lemon Tree and many more.
This can make you have far more gain then buying MFs, Nifty.

I am not SEBI Investor, it’s your call to get into it or not.

Is it right time to buy Sanmit infratel or Lemon tree as PE value for both the stock is high, what is best way to make investment in these type of momentum stocks.

Can u please see it and share feedback

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These are MBA101 type of talk with not a single iota of reality. It is almost impossible to hedge Small cap using highly uncorrelated NIFTY large Cap Index options. Even if you were hedging largecaps, NIFTY options will cost you lots of money…they cost you around minimum of 15-18%. So it is mostly unviable… still if you are interested read the following article: