Investing in stock futures for long term

General
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market has corrected since last few months ,therefore some of the quality stocks are available at reasonable price compare to October/November 2021. I have been thinking of investing in nifty 50 index or index stocks such as reliance infy and so on for long term but not via cash. I would like to invest in these stocks via futures considering that they are quality companies and other fundamentals. I will be able to pay the cash difference in case if the stocks drops further more, along with with preparation to roll them over every month before expiry.

What are the challenges I may face apart from price movement? which strategies can i use to hedge such investment to reduce the impact of price falling? has anyone been doing this kind of investing? please share your valuable experience so people like me can learn.

Thank you

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Without knowing capital size and experience, my post is a general one.

Start with index futures, basically Nifty. if you are leveraged even 4X and you get 10% CAGR, thats 40% p.a
Then you can do covered call and collect premium to cover the cost of carry.

When you roll Futures contracts, the price difference which is higher for next or far month contract is like paying interest on the leveraged loan.

Problem with stock Futures is higher margin in the expiry week, and relative lower liquidity in far month contracts compared to Nifty which is cash settled hence no increased margins etc. You have to manage a lot more,

Price shocks are far greater in stocks, and their circuits are not hard limits like index.

If you have a single ticker, you just focus on scaling-in and out as you like, easier to hedge with far PE. All these strikes are pretty liquid whereas even the top stocks cant match Nifty.

Nifty margins are the best too, you get more bang for the buck ie 8X, like 8L worth of lot for ~1L. Stocks can be even as low as 2-3X

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That’s great explanation …absolutely fabulous…appreciate :innocent::innocent::innocent:

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do no invest with leverage. it’s a very very bad idea.

invest in any nifty index fund , either lump sum or sip mode. markets are ripe for lump sum mode as well right now.

hedging does not always benefit. it can reduce your returns.

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Appreciate your input in this topic​:innocent::wink:

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Does anyone have any inputs in terms of strategy and potential challenges in implementing this process.

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Index futures is good if you carefully plan your leverage. If its long term that your are going for, be prepared for 15-20% drawdown anytime you bet on futures, should help you temper your leverage.

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thank you for your input …could you please elaborate more on your first sentence? According to you, what are the things which need to be consider while planning leverage?

Thank you

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Simple. You can begin by asking yourself “Can I take a 15% drawdown and still keep this going?” . Think about MTM losses.

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Great. thank you :slight_smile:

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Can someone else please share their thoughts or strategies using futures as a tool of investment?

Thanks

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I use it with index. Not with stocks.

I sell cash secured puts, buy either niftybees or nifty futures when they come ITM and then sell calls.

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Thank you for sharing your process :grinning:

If you don’t mind could you please let us know how effective/profitable this strategy is? are you able to do it regularly or in certain market conditions? anything else you think is good to know about this strategy

Thank you

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It works fine for me. But you need good capital.

Puts which I sold never came ITM for last 2 years until we had the fall from 18500.

So I was selling 17500 put then, so I converted to futures. Got good premium from calls for very long. I could have closed it after it went back to 18k but i didnt. I was adjusting my calls higher.

Next 17k put came n the money. After that at 16500. And at 15700 on monday. So I have futures at these levels. I am rolling over month after month.

Profitabilty wise, since the first time PUT got triggerd, that is 17500 in September, I have a net of realised and unrealised gain of 12 percent. So nifty has fallen 10 percent from 17500 and i have made 12 percent. So I have outperformed by 22 percent.
Thats enough for me.

Again I repeat you need good capital. Even after adding multiple times at the levels I mentioned, I am invested only 55percent of my total capital.
So even if nifty falls to 12k or 10k I am fine.

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so correct me i am wrong…with this strategy the call option you have been selling is helping you to reduce your M2M every month ever since market has been falling is that correct?

A follow up question: What would you do in case market makes a bottom, and goes above your call option, which may be lower than your average buy price of nifty futures?

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Yes.

I make sure it doesnt. I sell calls accordingly.

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Good thank you for sharing your strategy and some details about your ongoing trade…it’s a good example :wink::innocent:

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Sharing profitable and unprofitable trades with examples helps every newbies or even someone with good experience…hoping to get more inputs from this community or people engaged in trading futures with hedging strategies

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How effective or practical is it to invest in stock futures or nifty futures for long term? do you even get profits in long run, even after rolling? lol

I think, investing in futures can be dangerous strategy.

@nithin is it even possible?

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In Nifty Futures? Usually very practical after a 15-20% correction if you have funds to manage MTM.

Why would you think its impossible?