Can we use niftybees for leverage or hedging

Trading
1

Hi Siva and nithin,
Since nifty bees etf is equivalent of nifty. Can we use this to hedge positions in FNO or to get leverage for doing other transactions.
Thanks

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3

If you are short index F&O, yeah you can hedge by buying Nifty Bees. You can buy Nifty Bees, pledge it as margin and use it for trading F&O.

https://support.zerodha.com/category/console/portfolio/articles/what-is-pledging

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4

Thanks nithin.
In Contango (futures higher than spot) can I buy niftybees and use that as collateral to short nifty futures to get that (futures - spot ) difference at end of month.
Is it feasible in terms of etf liquidity or ROI?

5

ETF is liquid enough, no need to worry about that.
I haven’t seen exactly how this trade works but I think one should consider few points before taking this trade.
Contract value of nifty - 11000*75= 825000 worth etf should be bought, will take 2 days to get into demat, after that only can be pledged, so need to run market risk for 3 days if one decides to pledge this to get margin to short future so this is ruled out.
Other way is to short fut on same day of buying etf, in this case one should have full margin upfront to short nifty.
Take all costs to run these 2 trades and total money required, so cost of this capital.
If nifty goes up future will have negative m2m so need to fulfill that on daily basis if not position maybe squared off.
See the tracking error of ETF with nifty.
After considering all the above if you find trade is atleast breaking even then you can take it, but you may check this month how many points it actually need to break even for this trade.

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6

@siva-reddy @nithin
Thank you very much Team.
This helped a lot and saved my time as well.
I will try for delta < 1 strategies so I will not need to buy for these much quantities of ETFs.

7

@siva-reddy Where to get this data?

8

Here you go.

Untitled

Untitled

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9

Can be both negative, positive right?

10

Yes, price of ETF can diverge from underlying benchmark by that much either Up or Down.

11

@ShubhS9 @siva-reddy @nithin
Is tracking error value is related with basis(difference of spot, future).
Am I relating two isolated concepts?

12

To spot, also no need to tag Nithin for everything, can tag me or shubh.

13

Tracking error = difference(ETF, nifty spot)
Basis = difference(future, spot)

I was asking about relationship of these two entities.

14

ETF based on Nifty is equal to Nifty Index. ETF has no relationship with Nifty Futures whatsoever.

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