How to Manage The Huge Gap Down Stocks (like today Manapuram down by 10%), how can we minimize the losses? any strategy.?
Hi @Vivek_Naren ,
There are various hedging techniques which can be used depending on the available capital, amount of risk and margin of safety that a trader/investor is willing to take.
Let me try to cover two simple strategies :
1.Buying put option : The investor/ trader can hedge their holdings/ long position by buying a put option of the current expiry, which option should he/she buy depends on the risk appetite (OTM means less premium outflow but it can help against big moves, ATM/ITM options can be used if the risk that a person to take is minimal , but the cost will also be more as premium will be higher compared to OTM options)
2. Selling call option : The investor/trader can also hedge their holdings/long position by selling the call option if they are convinced that upside is capped and there is a risk of fall or consolidation. Do note that this strategy will only be helpful in case of little downside or consolidation. But, the advantage with this strategy is that the cost is less or zero in many cases.
I have covered the basic strategies with options. You can read in detail about option strategies here
You can read more about hedging with futures which is beautifully explained in this module of our learning platform Varsity here
I think some more info maybe needed here Vivek, Is the Gap Down already below your Mental Stop Loss ? What trade duration you had picked it up for, day, short term , medium, long ?
These things have to be considered while taking decisions in gap trades
ok Thank you sir.