Hi, i have invested in some small cap companies…but i am expecting the market to reverse over the next few months and i want to protect my portfolio…which is the best indice that i can use for hedging…nifty 50 and BSE small cap indice have a minimal correlation and the latter is not tradabale…any suggestions for hedging???
Hedging is done for short term for few days Max. Not for months. When you are clear it is going to down turn for months why to hold it in portfolio ?
If your investment is long term say four years or more then you don’t have to pay attention to short term movements.
But you can make money out this sideways movement by covered call writing.
Thank you for your reply. I agree with what you say. However, i am a trader first trying to move onto investing long term. so the moment i see a down turn in the small cap index, instinctively i will try to hedge my position until it hits a support level or when i feel the down trend has subsided…and as i said before, there is minimal correlation between nifty and S&P BSE small cap index, so it is becomes difficult to hedge my long positions using nifty…i was hoping to find an instrument which closely tracks/follows small cap index so that i can recuperate some losses from my long stock position…
I would not like to exit my long positions within a year as it would be beneficial in terms of taxation…hence hedging becomes the only option…