Options Strategy - Is it ok to hedge an option with the same option of another strike price?

General
1

Example:

Option01 : AAA company LONG CALL Strike Price 430 and premium @ 14, Current Market Price 425

Option02: AAA company LONG PUT Strike Price 420 and premium @ 12, Current Market Price 425

I fear markets will go down.

Is it a wise idea to LONG option1 and simulaneously short Option 2?

If market moves to 430, I will square off Option02 and let Option01 Long in profits

If market moves to 420 or less, I will compensate the losses in Option1 with Option02, I will wait until markets rise again and come to say 425/430 back.

I do not want a complete zero hedge, minimal losses or profits carrying both Option01 and Option02 is ok.

P.S: I do not want to use futures to hedge, since I am not interested in maintaining MTM.

Also suggest if hedging through furtures is the best idea, you think.

2

If you fear the markets to go down why don’t you just short a call or go long on a put. If you go long on option 1 and short on option 2 you are having a directional view i.e bullish.Option trading is highly complicated and there is a lot that goes on.In terms of parameters that you have to take into consideration are things like volatility, days to expiry,dividend etc. So if the stock is range bound and doesn’t move a lot & gets stuck @ 425 for a couple of days the premium will drastically fall.Always concentrate on writing options.You can also use futures to hedge.Delta hedging is one such strategy.

3

Ok thanks for the answer.
Sorry for the confusion, my view is bullish only. Thats why I suggested to long on Option01, which would be my primary call.
But if markets are stagnant or if drops for some time, hedging would be better, I thought.
Thats why I posed this question.
Days to expiry, say 20 more days to go, for example.
I am a beginner, sorry I dont want to write options. :slight_smile:

Points to ponder

  1. If markets are stagnant premium goes low. Thanks.