Trading options with futures

#1

what are the drawbacks of trading options with futures, i mean buying future & put option atm simultaneously for bullish view & selling future & buying call for bearinsh. please explain in simple language.
@Sensibull

#2

Seems like… a huge cash is required…
Lets say, buy a future lot & shorting ATM CE
If the stock price drops 20%… ur loss will be (loss on futures - premium received)
To hedge this trade u may need to buy a deep OTM PE…

And the shorting of options works well when the market is volatile, to collect the high premium…

Pls correct me of i m wrong

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#3

yes acc to me approx 4-5 lks cap requirement…rest i don’t know that’s why i asked.
@Sensibull @Karthik please explain , the downside of this , my view is for small movements this can work as the option premium will not have a significant change for a small move in future and for big moves i’m unable to comprehend the implications. so please explain both the scenarios.

1 Like
#4
#5

Not a bad hedged strategy for positional trades. Only drawback is if the IV of the script is on the higher side then you would be paying a lot for the insurance with long option. Also, if the script is moving nowhere for some days then the time decay erosion in the ATM option will be palpable since ATM options have highest time value.

-AlphaT