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Strict debt fund rules on anvilFIIs sell shares worth Rs 910 cr

: higher premium. Ideally, investors think that a lower premium is cheaper and better but this is not the case.

Lower premium will be available because the gap is much higher between the spot and strike price. It is true that in case of lower premium the risk of loss in terms of value is much less. However, there is a risk of losing the 100% of the premium amount paid and the number of lots bought if the gap doesn’t get narrower over the period of the contract. The same case can happen while selling the options because one gets the premium upfront but the loss of risk is unlimited.

Strategies

Apart from going long and short you can use various other strategies to hedge your position in different market situation. This requires good homework and regular tracking of the derivatives options in the market. These strategies normally involve initiating more than one transaction. Strategies like bull call spread, bear call spread, long and short straddle, strip and strap.

When you think the underlying index i.e., Nifty will go up somewhat or is at least more likely to rise than fall; one should execute bull call spread strategy. A call option is bought with a lower strike price and another call option is sold with a higher strike price, producing a net initial debit. The same thing applies in put option. In this, the upside potential is limited

Derivatives options can be used as an arbitrage apart from hedging. Arbitrage opportunity can be used between two strike prices and various others.

Newer avenues & the other side

Investors can now take exposure in Nifty options for longer term as compared to maximum three-month options contract available currently on the NSE stock exchange. This new product will overcome the disadvantages in the current options where exposure is available for the short-term period. In the long-term nifty options the contract maturity will be every quarter (March, June, September and December). The next three quarters will be covered.